Opinion
No. 26844.
April 2, 1928.
1. BANKS AND BANKING. Liquidating agent authorized to effect settlement of debts, etc., by agreement between bank, creditors, and state banking department could sue on note payable to bank or bearer ( Hemingway's Code 1927, section 511).
Where a note was given to a bank, or bearer, and such bank was taken over for liquidation by the state banking department, and an agreement entered into between the bank and the creditors of the bank and the state banking department, which agreement was approved by the chancery court, for another corporation to take charge of the notes of the bank and collect them for the benefit of the bank and its creditors in which the liquidating agent is authorized to effect settlements of debts, compromise claims, give valid acquitances therefor, and do all things in its judgment necessary to liquidate the affairs of the bank, which the bank might have originally done as fully as though the bank was not in liquidation, and where such note was in possession of the liquidating agent, such liquidating agent had the right to sue upon the note as liquidating agent of the said bank.
2. BILLS AND NOTES. Release of some signers of accommodation note on adequate consideration held to entitle others only to have pro-rata shares of released persons credited on note ( Hemingway's Code 1927, sections 2323, 2324).
Where a note is executed by a number of persons for the benefit of a corporation as an accommodation for said corporation, and some of the signers of the said note are compromised with and released from liability, upon adequate consideration, such compromise does not release the other signers of the note, but only entitles them to have the pro rata shares of the liability which such released ones bear to the total obligation credited upon the note.
3. BILLS AND NOTES. Nonaction by holder of collateral notes held no defense to suit on principal note given for accommodation unless makers thereof demanded action.
Where, in the case stated in the preceding syllabus, collateral notes of the corporation for whose benefit the note was signed are pledged with the principal note, mere nonaction on the part of the holder of the collateral notes in collecting them is not a defense to the suit on the note unless demand was made by the makers of the note for some action to be taken in reference thereto.
4. LIMITATION OF ACTIONS. Action on principal note before action on collateral notes was barred held not barred by limitation applicable to collateral notes; defense of limitation as to note sued on must be judged by status at time of suing.
Where collateral notes are put up to secure a given note, and no action is taken on the collateral notes, but suit is brought on the main note prior to the running of the statute of limitations against the collateral notes, the statute of limitations as to the collateral note is not available in the suit on the main note so as to defeat it. The defense to the note sued upon must be judged by conditions and the status at the time the suit was instituted, and not by the status at the time of the trial.
5. PLEADING. In action on principal note, pleadings setting up defense in handling of collateral notes should be specific.
Pleadings undertaking to set up a defense in the handling of collateral notes given to secure a note sued on in a suit upon such principal note should be specific and set forth with legal certainty the facts relied upon and negligence in the collection or handling of the collateral notes.
6. TRIAL. Court permitting amendment of pleadings setting up limitations as to notes collateral to one in suit should reopen case to permit plaintiff to show makers of collateral notes were insolvent.
Where, at the conclusion of the evidence in the case, a defendant obtained leave to amend the pleadings so as to set up the running of the statute of limitations as to collateral notes and such amendment is permitted by the court, the court should permit the plaintiff, by counternotice, to show that the makers of the collateral notes were insolvent and that collection could not be coerced, and to reopen the case for the purpose of making proof to show such facts.
APPEAL from circuit court of Second district of Coahoma county; HON.W.A. ALCORN, JR., Judge.
Roberson, Yerger Cook, for appellant.
In determining the legal rights of the parties litigant, it will be necessary for the court to have in mind the several defenses pleaded by the several defendants. The record discloses the following pleas and notices filed and presented; plea of general issue by all defendants, save and except Baker and McWilliams; plea of payment in part of all defendants; plea on part of all defendants except Allen, Mosely, Anderson and Harlow, that defendants had been discharged and released from liability "by accord or agreement" with reference to some collateral notes; plea that the parties defendant were sureties and that some of the sureties had been released, which release of some of the sureties had the effect in law of releasing all the defendants; plea of accord and satisfaction; plea that since some of the defendants had been released, a recovery could not for that reason be had against any of them; plea that plaintiff was not owner of notes; as to all defendants except Allen, Mosley and Anderson, plea sworn to that plaintiff was not owner as to defendants Earl Brewer, Ed. Brewer, Johnson, Mullens, Nichols and Corley. Notice, purporting to be under general issue, although no plea of general issue had been filed for defendants Baker and McWilliams, to the effect that defendants were accommodation makers of the note, and that as such they had been released by the plaintiff. This notice was not filed on behalf of either Harlow, Allen, Mosley or Anderson. Plea that Earl Brewer had been discharged.
In addition to the defenses pleaded by the defendants as hereinabove set out, the defendants, after all proof had been made and both sides had rested, filed what is called by them as a "notice" that the defendants will prove that with the note sued on were delivered a large number of notes as collateral and that plaintiff had permitted the collateral notes to become barred. This being the notice which the plaintiff moved to strike, and upon the motion being overruled presented its counternotice showing that plaintiff would prove that no damage had been occasioned any of the defendants as a result of the collateral notes being barred by limitation. But the trial court refused to permit the plaintiff to make any such proof.
It will be observed that none of the so-called collateral notes was barred when the lawsuit was instituted; that none was barred when the first trial was had; that the notes were barred when the second trial was had and had been barred for about two months. In its counternotice, the plaintiff set up the fact that during the year 1926 it, the plaintiff, offered to return to the defendants the collateral notes referred to. That part of the notice just referred to reads: "that during the year 1926, the defendants and each of them were tendered the said collateral by the plaintiff, and it was stated by plaintiff to said defendants that in its opinion the said collateral was valueless, and if the said defendants desired said collateral, the plaintiff would surrender and release same to the defendants." But as heretofore stated, the court would not permit the plaintiff to make any such proof.
Now as to all the pleadings, except the last notice filed on behalf of any or all of the defendants, we submit they are without merit. The pleas of payment were apparently abandoned. There is nothing to support the plea of accord and satisfaction. There is nothing of merit in the pleas that the defendants were either accommodation makers or sureties. The note shows they were all makers of the note, and the record shows without dispute that on the faith of the note, the Planters' Bank put out eleven thousand, six hundred thirty-nine dollars and fifteen cents of its good money which was reduced by payments to eight thousand, one hundred thirty-two dollars and four cents and in addition thereto, the interest and attorney's fees, for which recovery was asked as against the defendants.
It is true that the makers: E.L. Anderson, A.J. Mosley and H.T. Allen have been released; but such a release is not a bar to a recovery as to the nine other defendants. Sec. 2169, Hem. Code. But they were entitled to a credit on the note in an amount equivalent to one-fourth of the principal, interest and attorney's fees. Branton v. Crittenden, 145 Miss. 531, 111 So. 150.
The evidence in this cause does not warrant a court in peremptorily saying that Earl Brewer was released. It is to be noted that the correspondence referred to in the testimony of Earl Brewer in no wise refers to or includes the note sued on. A fair interpretation of such correspondence shows that it is not a release of any notes except the ones contained in the list referred to. The oral testimony of Earl Brewer as to the agreement between him and Calhoun Wilson was incompetent and was objected to. It was incompetent because Earl Brewer expressly stated that he had the letter of Calhoun Wilson and really brought same into court but never did introduce it.
Defendants contended that the plaintiff could not maintain this suit because the plaintiff did not have legal title to the property. The court will understand that the Yazoo Delta Mortgage Company is a corporation and is the liquidating agent of the Planters' Bank, Clarksdale, Mississippi, the appointment having been made by the chancery court of Coahoma county. This decree provides, in effect, that the Yazoo Delta Mortgage Company, as liquidating agent of the Planters' Bank, is to have all powers and rights possessed by Planters' Bank and could do "all things in its judgment necessary to liquidate the affairs of the Planters' Bank, which might have originally been done by the Planters' Bank, as fully and completely as though the bank was not in liquidation." Still, notwithstanding the decree referred to, one of which contains the above-quoted excerpt, the defendants plead and contend that the Yazoo Delta Mortgage Company could not maintain this action. The plaintiff herein brought this suit as the liquidating agent of the Planters' Bank and for the use of the Planters' Bank, as shown by the declaration and the amendment to the declaration. To so bring the suit, we cannot see that its right can be questioned. Cottrell v. Smith, 110 So. 465.
Referring again to the notice filed by defendants subsequent to the closing of the case, the attention of the court is called to the fact the defendants do not claim that they were damaged in any amount. The notice does not state that the collaterals, even though barred, were of any value nor does the notice state or tend to state that there was any loss of any kind suffered by the defendants, or either of them. Unless by the act of the plaintiff damage was occasioned the defendants, the plaintiff could not be made to respond in damages in any amount. The purpose of awarding damages to a litigant is based solely on the theory of making the party whole. If the party seeking damages does not plead and show by competent proof that it has been damaged by the act complained of, then no recovery will be awarded. So in the case at bar, the defendants cannot successfully maintain their position that since the collateral notes are barred the plaintiff cannot recover.
Set-off and counterclaim is the only principle of law under which any party defendant to a suit can defeat a recovery against him on account of the failure of plaintiff to do some act, the failure so to do resulting in damage to the defendant. And in order for such a set-off and/or counterclaim to be available to a defendant it must exist at the time of the filing of the suit in which such set-off or counterclaim is sought to be by the defendant used as a defense. 2 Joyce, Defenses to Commercial Paper, sec. 864.
If any cause of action ever existed in favor of the defendants, same did not accrue until after plaintiff instituted its suit. Such being the case, defendants could not plead as a set-off in a court of law the fact that plaintiff had permitted the collateral notes to become barred by the statute of limitations for the reason that the bar was not complete at the time of the institution of the suit.
The only contention that can be advanced by the defendants supporting its proposition that since the collateral is barred the plaintiff cannot recover is that the plaintiff took no action to sue on the collateral notes. In short, the defendants say that the plaintiff was guilty of inaction or passive negligence in not beginning suit on the collateral notes. We do not understand such a contention to be maintainable. See 21 R.C.L. 1055.
Ed Brewer, for appellees Anderson, Mosley, Allen and Earl Brewer.
It is admitted by counsel for appellant that appellees E.L. Anderson, A.J. Mosley and H.T. Allen were released from all liability, so there is no question but that the cause as to these three appellees is to be affirmed. As to the appellee Earl Brewer, counsel say that the evidence in the case did not warrant the court in peremptorily instructing the jury. Counsel, however do not give any reasons to support their statement. We respectfully submit that this testimony, which is not disputed or contradicted, shows conclusively that appellee Earl Brewer was released from all liability on the note sued on in this cause. Governor Brewer testified that his agreements were had with Mr. Oscar Johnson, Mr. A.J. Mosley and Mr. Calhoun Wilson. All of these witnesses were available but not one of them was introduced to contradict or attempt to contradict anything stated by Governor Brewer in his testimony.
Brewer Brewer, for appellees Johnson, Corley, Nichols, Mullins and Ed. Brewer.
The burden of proof was upon the appellant, the pledgee of the collateral notes, to prove that its negligence in permitting the notes to become barred by the statute of limitations did not injure the pledgors, the appellees here. It is laid down in 31 Cyc. 835, under the subject of Pledges, that "where the pledgee has permitted securities pledged to him to become barred by limitations, or has wrongfully surrendered collateral pledged to him, the burden is on him to prove that his negligence or wrongful act has not injured the pledgor." The above statement of the law, so far as we are able to ascertain, is not questioned. The burden was not met and no proof was offered showing or tending to show that the collateral notes could not have been collected if any diligence had been shown. Appellees have the right to set up as a defense the negligence of appellant in permitting the notes to become barred. Counsel for appellant insist that the appellees in this case have no right to rely upon the negligence of appellant in permitting the notes to become barred, for the reason that the notes were not barred until after the commencement of the cause of action. This contention is untenable and is unsound. There may be certain cases where a person cannot avail himself of a set-off of a claim or demand acquired after the commencement of the suit, but such is not the case here. Suppose, for the sake of argument, that after the filing of the suit against appellees the appellant had collected all of the collateral notes, including principal and interest, and had converted the money to its own use instead of applying it on the note. Would not the appellees have the right to set this up as a defense even though the money was collected after the filing of the suit on the note to which the collateral was attached? In the majority of jurisdictions it is held that the counterclaim which rises out of the same transaction as that which is the subject of plaintiff's demand need not be an existing demand in favor of the defendant from which he could have maintained an independent action at the time of the commencement of the action, but it is enough if it is such a demand at the time it is pleaded as a counterclaim. California Canneries Co. v. Pac. Sheet Metal Works, 164 Fed. 978; Hyman v. Jockey Club Wine Co., 48 P. 671; Wilson v. Wilson, 40 Ia. 230; Brown v. Weiland, 61 L.R.A. 417; Howard v. Johnston, 82 N.Y. 271; John Slaughter Co. v. Standard Sewing Machine Co., 62 S.E. 599.
The very question here under consideration is discussed in 2 Joyce's Defenses to Commercial Paper, p. 1241, par. 885. One Mississippi case, Fennell v. McGowan, 58 Miss. 261, is almost directly in point, the holding being as follows: "Howard Falconer borrowed from McGowan five hundred dollars, giving his own note and depositing as collateral a note for one thousand five hundred dollars on R.S. Stith. Stith subsequently paid to Falconer the amount due on his note, well knowing that it had been hypothecated to McGowan, but relying upon Falconer's promise to take it up and surrender it, which the latter failed to do. Subsequently to this payment by Stith, McGowan sold the Falconer note to John D. Fennell, agent of plaintiff, M.T. Fennell and with it delivered the collateral Stith note. Fennell held both notes until the Stith note became barred by the statute of limitations. Fennell being now dead, his administratrix brings this suit, for the use of M.T. Fennell, against McGowan upon his endorsement of the Falconer note. The learned judge below rightly instructed the jury that the payment of his note by Stith to Falconer, at a time when the former knew that it had been hypothecated to McGowan, was a nullity so far as McGowan was concerned; that the latter could have compelled Stith to pay it again; that this right passed unimpaired to McGowan's assignee, Fennell; and that the latter, by taking no steps to collect it, and allowing it to become barred by the statute of limitations, became liable to McGowan for its value, and as that value exceeded the amount due on the Falconer note, it constituted a perfect defense to this account.
The court did not commit error in refusing appellant the right to reopen the case. Counsel for appellant cannot claim that they were surprised. They cannot say that any advantage was taken of them. We did not offer any proof after the filing of the notice. Not only did they permit the appellees to show that the notes had become barred by statute without any objection of any kind, but they went further in an effort to rebut this and attempted to show the insolvency of some of the defendants. If, as they set up in their numerous motions, they could have proved the insolvency of the makers of the collateral notes, why did they not make this proof at the time they were attempting to show insolvency of Mr. Mullens, Mr. Theders and Mr. Armstrong? If appellees had been permitted to file the notice and then offer additional proof thereunder, of course, the appellant would have had the right to offer further proof. But in view of the fact that the notice was filed for the purpose of setting up matters brought out by the very first witness introduced by appellant, there was no reason, legal, moral or otherwise, why the trial court should have permitted the appellants to reopen the case and to bring in any additional proof. The appellant had had its day in court; it knew what appellees had proved; it is bound to have known that appellees would not have brought out this proof unless they had intended to rely on it. Rodgers v. Kline, 56 Miss. 819.
Maynard, Fitzgerald Venable, for appellees McWilliams and Baker.
There was no cause of action in the Yazoo Delta Mortgage Company. The note sued upon was payable to bearer, and it is admitted that possession of the note and its introduction in evidence would make out a prima-facie case. The defendants undertook to prove under the issues that no title was in the plaintiff. Title was directly in issue. The plea of general issue of non assumpsit puts in issue plaintiff's title to a promissory note. Anderson v. Patrick, 7 How. 347; Bingham v. Sessions, 6 S. M. 13; Netterville Boyd v. Stevens Pillet, 2 How. 642; Hawkins v. R.R. Co., 35 Miss. 691. The general issue pleas of non assumpsit and nil debit are applicable to suits on notes. 8 C.J., Bills and Notes, p. 610, sec. 1195.
By special pleas filed, the title of plaintiff was directly put in issue, and if special demurrers were now good they were objectionable because amounting to a general issue. Bacon v. Cohea, 12 S. M. 516; Grand Gulf Bank v. Curtis Wood, 12 S. M. 482; Scott v. Metcalf, 13 S. M. 563. They were in no wise objected to, and squarely and specifically put in issue plaintiff's title. Of course plaintiff must show a legal right to the matter in dispute in an action at law as a necessary foundation for the maintenance of the suit. St Paul Fire Ins. Co. v. Auto Co., 121 Miss. 745; Eckford v. Hogan, 44 Miss. 398. The ownership of the cause of action on the note being in issue plaintiff undertook to meet it by the introduction of a note made payable to bearer. To this defendant replied by the introduction of evidence which showed completely that the Yazoo Delta Mortgage Company had no title. There was introduced in evidence what was known as the creditor's agreement, whereby the Yazoo-Delta Mortgage Company, under a decree of the court, was appointed as the liquidating agent of the Planters' Bank, which had been taken over for liquidation by the state banking department. This creditor's agreement was confirmed by the decree of the chancery court which had supervision of the liquidation. In this creditor's agreement there is set forth the rights and the powers of the parties thereto, including the Yazoo Delta Mortgage Company, and while the Yazoo Delta Mortgage Company is appointed as liquidating agent, for the purpose of collecting assets, no title to the assets in the form of negotiable paper was transferred or in any wise vested in the Yazoo-Delta Mortgage Company, but any such idea is expressly excluded. Title to the paper was vested either in the creditor banks, who owned them at the time of the failure of the Planters' Bank, or were vested in what was known as the "Pool" where certain of the collateral was placed in the hands of a trustee. At the time of the failure of the Planters' Bank it had hypothecated many notes with its correspondent banks. The Yazoo Delta Mortgage Company was formed as a liquidating agent, with certain powers and duties mentioned in the creditor's agreement. Certain of the collateral notes had been pooled and transferred to a trustee. Other banks reserved the right to deal with their paper individually. And it is apparent that it was the purpose that suit should be brought in the name of the person having the legal title to the particular paper involved, which might be the Planters' Bank, or the trustee, or a certain one of the accepted banks. This is a complete negation of any right of action being lodged in the Yazoo Delta Mortgage Company, and nowhere do we find that any title to any collateral is vested in the Yazoo Delta Mortgage Company.
It appears that in dealing with Mr. E.L. Anderson and others, Mr. Anderson being one of the guarantors of the Planters' Bank to the creditor banks, he and these banks entered into an agreement whereby for the payment of certain money, and the promise to pay the balance totalling one million seven hundred fifty thousand dollars, the creditor banks discharged Mr. Anderson from all obligations to them, as did likewise the Planters' Bank. E.L. Anderson pays, and the banks receive, one million seven hundred fifty thousand dollars in full satisfaction of all claims against E.L. Anderson, and the banks being so satisfied as to obligations owed them, release and discharge the said E.L. Anderson from any and every liability to them, or any of them. Our position is that since E.L. Anderson was jointly and severally bound for the payment of the note sued upon, that the acceptance by the bank of the one million seven hundred fifty thousand dollars as a satisfaction of all obligations necessarily paid the note sued upon because if that note was satisfied, it necessarily was satisfied as to all who were bound thereon. As much so as if one of them had paid the note in money.
We do not overlook the rule at common law that if a note was paid it was discharged completely, and our statutes do not in any wise change this. We do not overlook sec. 2323, Hem. Code 1927, sec. 2682, Code of 1906. This section provides that in all cases of joint or joint and several indebtedness, the creditor may settle or compromise with and release any one or more of such debtors and the settlement or release shall not affect the right or remedy of the creditors against the other debtors for the amount remaining due and unpaid, and shall not operate to release any of the others of the said debtors, etc. We admit that if a creditor, intended to retain his right against the other joint and several debtors, releases one of them that this does not discharge the others. But, certainly it is permissible for a creditor holding the obligation of joint and several debtors to enter into a contract with one of them that the payment of a certain sum shall be a discharge of the indebtedness, and not simply of this debtor's part thereof. There is nothing unlawful or wrong about such an arrangement, and such an agreement is valid in every respect. That is what we say occurred in the dealings between E.L. Anderson, Planters' Bank, Yazoo Delta Mortgage Company. It will be noticed that the language is that Mr. Anderson pays one million seven hundred fifty thousand dollars in full satisfaction of all his obligations and liabilities. His obligation and liability on the note sued upon was to pay the entire note. Nothing is said about the retention of rights against others, and the banks accept this payment as a complete discharge of any and every liability to them.
Again, it will be noticed that the section of the Code provides that if the debtor for his individual release has paid less than his ratable share, the full amount of his ratable share shall be credited on the notes. If he has paid more than his ratable share, the whole amount paid by him is credited on the note. It will be noticed that the one million seven hundred fifty thousand dollars paid and to be paid by Mr. Anderson is in no wise prorated on the several obligations owed by him to the banks, the Mortgage Company or the Planters' Bank. If the other parties to the note sued upon are to be held for the balance due on the note, certainly what Mr. Anderson has paid should be credited thereon, and his co-debtors should get the benefit of anything over the ratable proportion of the indebtedness paid by Mr. Anderson, if the scheme of the statute is to be followed, and the statute applied. To hold the statute applicable would be arbitrary to hold that Mr. Anderson paid pro rata on this note his ratable share, or some less, when, as far as the facts appear, if the payment by Mr. Anderson had been prorated to his obligation there might have been allocated to this note a payment in excess of his ratable share.
There was no mistake of fact. They took Mr. Anderson's money in full satisfaction of all indebtedness which he owed. There was then a full satisfaction of this note, because he owed it and owed all of it. If this payment of the note sued upon had the effect of discharging us as a legal consequence, as it must have, because if there was a payment of the obligation the obligation has been discharged, since it has been performed.
Argued orally by S.C. Cook, for appellant, and Earl Brewer, for appellee.
The Yazoo Delta Mortgage Company sued the appellees A.J. Mosley, J.H. Johnson, Ed Brewer, Earl Brewer, S.A. Corley, H.T. Allen, W.B. Nichols, W.P. Baker, W.G. Harlow, E.J. Mullens, Jr., R.N. McWilliams, and E.L. Anderson upon a promissory note payable to the Planters' Bank of Clarksdale, or bearer, for the sum of eleven thousand six hundred thirty-nine dollars and fifteen cents, with interest at the rate of eight per cent. per annum after date until paid, and reasonable attorney's fees for collection if not paid when due. The note was credited with various sums, but the amount due after said credits was eight thousand one hundred thirty-two dollars and four cents, and demand was made for this sum with eight per cent. interest thereon from and after August 18, 1925, and for the further sum of two thousand six hundred eighteen dollars and fifty-four cents and interest up to August 29, 1925, and for the further sum of one thousand five hundred dollars as attorney's fees.
The several defendants filed various pleas:
The defendant W.P. Baker pleaded payment and discharge; also that after the due date of the note the plaintiff entered into an agreement for a settlement of the indebtedness of the defendants A.J. Mosley, Ed Brewer, H.T. Allen, W.B. Nichols, and E.L. Anderson; also that there were several collateral notes given as security for the note sued upon, and that by the agreement between the parties each of said collateral notes was discharged and released, and the parties thereto discharged from liability to an amount equal to the amount of the note sued upon. He also pleaded that the plaintiff was not the owner of the promissory note sued upon, had no legal title thereto, and that it had so dealt with the owner of said paper as to constitute a release and discharge of this defendant. It was further pleaded that said note is an accommodation note for the benefit of the Johnson-Harlow Lumber Company, and that the makers never received any benefit from same, and that proof would be offered to show that, being an accommodation note, the makers thereof had been fully and finally released by the acts of the plaintiff herein.
The defendant R.N. McWilliams filed several pleas in which he alleged that the plaintiff was not the owner of the note sued upon, and that the note, after becoming due, had been fully paid, and that, at and after the due date of the note, the said plaintiff entered into an agreement for the settlement of said indebtedness with the said defendants A.J. Mosley, Ed Brewer, W.T. Allen, W.B. Nichols, and E.L. Anderson, whereby said indebtedness was discharged. This defendant further pleaded that the plaintiff was a mere collection agency without legal title to the said paper, the said paper being owned by one of the correspondent banks of the old Planters' Bank, and that the correspondent bank, owner of said paper, had so dealt with it as to release and discharge this defendant. He further pleaded that the plaintiff was not the present owner of the note sued upon; that plaintiff should not maintain this action, because, as collateral security for the note sued upon, there were attached thereto various collateral notes of E.J. Mullens, and E.J. Mullens Sons, and others, and that, by an accord or agreement between the parties, the plaintiff herein and the correspondent bank owner of said note, the said collateral notes were discharged and released and the parties thereto discharged from liability to an amount equal to the amount of the note herein sued upon, which said release and such dealing with said collateral notes constituted a satisfaction of the note sued upon and a release of the defendants whose names are affixed thereto.
J.H. Johnson, Ed Brewer, Earl Brewer, E.J. Mullens, Jr., W.B. Nichols, and S.A. Corley pleaded to the declaration that the plaintiff should not have and maintain its action against them, because the plaintiff is not the owner of the note sued on: that the plaintiff is simply a collection agency without legal title to the paper, said paper being owned by one of the correspondent banks of the old Planters' Bank who should be plaintiff herein; and that said correspondent bank had so dealt with it as to release and discharge these defendants. They further pleaded that said action should not be maintained because they say that, as collateral security for the said note sued upon, there were attached thereto various collateral notes of E.J. Mullens and E.J. Mullens Sons and others; and that by accord or agreement between the said parties, said collateral notes were discharged and released, and the parties thereto discharged from liability to an amount equal to the amount of the note herein sued upon, which release and such dealing with said collateral constitutes the satisfaction of the note herein sued upon and release of the defendants whose names are affixed thereto.
The defendant W.G. Harlow pleaded that he did not undertake and promise in manner and form as alleged in the declaration; that plaintiff ought not to have or maintain its action against him because plaintiff is not the owner of the said promissory note; that heretofore, for valuable consideration, A.J. Mosley, Ed Brewer, H.T. Allen, W.B. Nichols, and E.L. Anderson, joint makers with the defendant on said alleged note, have been released and discharged from liability thereon; and that the action of the plaintiff in releasing and discharging the said joint makers of said note operated in law as a discharge of this defendant; and further pleaded that this indebtedness had been fully paid.
The defendant Earl Brewer gave notice under the general issue that he would offer proof that, in so far as he was concerned, the note had been paid and satisfied in full, and he had been fully and finally released from all liability thereon. He also filed a special plea setting up that on or about the 18th day of June, 1923, he had an agreement with plaintiff as liquidating agent of the Planters' Bank, whereby he agreed to deliver to them seventy-five thousand dollars par value, but of the actual value of one hundred fifty thousand dollars, of the capital stock of the Tchula Co-operative Store, in accord and satisfaction of all indebtedness that was owed to the Planters' Bank of Clarksdale, Miss., or to the Yazoo Delta Mortgage Company as liquidating agent of the Planters' Bank, whether said amounts were owned as principal or by open account, or whether as maker, joint maker, surety, indorser, or guarantor; and that, at that time, Earl Brewer was indebted to said bank, and, therefore, to said Yazoo Delta Mortgage Company as liquidating agent of said bank, in large sums, aggregating more than thirty thousand dollars, and that he was joint maker of a large number of the notes with numerous persons, to-wit, on notes of Brewer and Wheatley, Brewer and Willingham, Brewer and McDougal, Earl Brewer and Dan Brewer, and Shelton and Earl Brewer, Dan Brewer and Lee Shelton, doing business as the Wildwood Planting Company, and Brewer and Simmons, and indorser on a large number of small notes of various and sundry people payable to the Planters' Bank, and then held by the Yazoo Delta Mortgage Company, as liquidating agent of the Planters' Bank, and that, by virtue of said agreement, the defendant Earl Brewer delivered to the Yazoo Delta Mortgage Company, or its agent, F.E. Gunter, the said capital stock of the Tchula Co-operative Store above described, which was to be in full accord and satisfaction of all indebtedness of every kind and description owed by the said Earl Brewer, whether by note or open account, as joint maker, principal, surety, or guarantor for any person or corporation, and was to be in full accord and satisfaction and to release absolutely the said Earl Brewer from any liability whatsoever to the Planters' Bank or the Yazoo Delta Mortgage Company, except one note for five thousand dollars owing by F.A. Wheatley, indorsed by Earl Brewer, which was to be paid in full, together with interest, which note was on or about the 19th day of June, 1923, paid in full. Defendant pleaded that he was released and discharged from all liability to the said Planters' Bank or to said Yazoo Delta Mortgage Company as liquidating agent.
Issue was taken in short to these pleas by plaintiff. Summons was issued on the 29th day of August, 1925, for the several defendants, and the cause was tried at the February, 1927, term. On the trial of the cause it was proved for the defendants, by the plaintiff's witnesses, that no steps had been taken for the collection of the collateral notes set forth in the pleadings given with the note herein sued on, and that the said collateral notes had been barred shortly before the trial of the cause in February, 1927, but that said notes were not barred when the declaration was filed. The agreements were introduced in evidence showing the settlement and release of E.I. Anderson for valuable consideration from every kind of debt due the said bank, found upon full and adequate consideration, and a similar agreement was made on September 17, 1925, whereby A.J. Mosley was likewise released from any and all liability of whatsoever nature, character, or description, and that a similar agreement was likewise had with H.T. Allen on the 14th day of December, 1925.
Earl Brewer testified that the agreement he had with the bank by which he delivered to it seventy-five thousand dollars par value stock of the Tchula Co-operative Store, actual value one hundred fifty thousand dollars, was in full satisfaction of all debts of every character and nature owing to the Planters' Bank or Yazoo Delta Mortgage Company as liquidating agent of said bank, and his testimony to this effect was not disputed by any witness on part of the plaintiff.
It appears that the Planters' Bank prior to July 25, 1922, had become in a failing condition, and had been taken over by the banking department, and there was a kind of satisfactory arrangement whereby appellant was to become liquidating agent, and to collect, adjust, etc., various debts owing to the Planters' Bank. This agreement, made in 1922, to which the state bank examiner was a party did not appear in the record, but a decree of the chancery court, bearing date July 25, 1922, recited that:
The "Yazoo Delta Mortgage Company, in its capacity as liquidating agent for the Planters' Bank in liquidation, shall be and is hereby fully authorized and empowered to collect funds, to execute powers of attorney, to release trust deeds, notes and vendor's liens, to accept conveyances of property in trust, and to designate a trustee to take title to property taken in the collection of debts, to execute conveyances whereby it may dispose of property of any and every character, real, personal, or mixed, which heretofore belonged to the Planters' Bank at the time said bank went into liquidation, and to convey title to all real estate which it may hereafter acquire in the conduct of its business as liquidating agent, and in the administration of the affairs of said bank when, as, and if, in the discretion of said liquidating agent, such things are necessary to be done.
"It is further ordered, adjudged, and decreed that in conveying real estate, title to which may be taken in the collection of debts or in settlement of claims, such claims shall be in the name of the Planters' Bank of Clarksdale, by the Yazoo Delta Mortgage Company, liquidating agent, and a conveyance so executed shall operate fully and completely to convey the right, title, and interest of the said Planters' Bank to the assignees or vendee named in the conveyance. Title taken in the name of a trustee shall be conveyed by the trustee.
"It is further ordered, adjudged, and decreed that the said liquidating agent be and the same is hereby authorized to effect settlement of debts owed to the Planters' Bank upon such terms as it may regard as just and equitable, and may compromise claims and give valid acquittances therefor, and, in short, may do all things in its judgment necessary to liquidate the affairs of the Planters' Bank which might have originally been done by the said Planters' Bank, as fully and as completely as though the bank was not in liquidation."
A subsequent agreement was entered into on December 1, 1924, by which the Planters' Bank and the creditors thereof provided for the continuance of the liquidation of the affairs of said bank, and by which certain persons were constituted a committee known as an advisory committee, and which would have advisory control of such affairs, and by which the appellant agreed to confer with and submit to the advice of such advisory committee. Said committee represented the creditors of said Planters' Bank, which creditors severally agreed that they would forbear until December 1, 1927, to make demand upon the bank for payment of their debt and interest, subject, however, to the rights reserved hereinafter in said agreement; but it was provided and agreed by the parties that:
"Nothing in this agreement contained shall in any wise impair or affect the free and unrestricted right on the part of each and every creditor to undertake the enforcement or collection of any and all collateral notes, not embraced in the `pool' pledged by the bank to such creditor to secure any obligation of the bank owing to such creditor in accordance with the uncontrolled discretion of such creditor, which may be exercised without regard to the due date or time of maturity of the principal notes to secure payment of which the collateral may be pledged, each creditor expressly reserving and being expressly granted the right to deal with any collateral specifically pledged with that creditor in such manner as, in the judgment of the creditor, may seem best, and this right shall include the right to sell and dispose of any collateral notes, to foreclose any trust deeds, mortgages, or other liens, to dispose of any real estate or any equity or right in real estate, to make settlement with the maker of any pledged note or notes, to accept renewals, to take additional collateral or security and/or to release any collateral or security, and to deal with the collateral pledged to secure notes of the bank to the same extent as though said collateral had been reduced to ownership by the creditor," etc.
It was further provided in this last agreement that:
"The collateral constituting what is known herein as the `pool' shall be in the custody of the trustee as hereinbefore provided, and all actions taken by the trustee in reference to handling and dealing with the trusteed collateral shall be taken upon the direction of the advisory committee. All actions at law or in equity to enforce the rights of the creditors or of the `pool,' either for the collection or protection of any collateral pledged, may be brought and conducted in the name of the bank in liquidation by the mortgage company, or may be brought in the name of the trustee for the benefit of the `pool' and/or in the name of any one or more of the excepted banks which may be interested in the collateral."
This agreement was approved by the chancery court on December 12, 1924. In the first paragraph of the decree it is stated that:
"The plan of liquidation as outlined in the said creditors' agreement is hereby approved by this court."
In paragraph 2 it is stated that: "The state superintendent of banks is hereby authorized and empowered to sanction and approve the execution of the creditors' agreement aforesaid."
And in the third paragraph: "The Yazoo Delta Mortgage Company is authorized to execute the creditors' agreement aforesaid as a party thereto."
And in the fourth paragraph: "The Yazoo Delta Mortgage Company . . . is hereby fully and completely authorized and empowered . . . to do and perform all of those things necessary, essential, or advisable to be done in carrying into effect the purpose of the said creditors' agreement, and in conducting the liquidating of the Planters' Bank in accordance with the terms and provisions of said agreement."
At the conclusion of the testimony, the defendants moved to be allowed to plead the statute of limitations as to the collateral notes pledged with the note sued upon, which motion was, by the court, allowed over the objection of the plaintiff. The plaintiff then sought to reopen the case, the evidence having been closed, both sides having rested, and to file a response to the statute of limitations, in which response it was alleged that they would offer evidence to prove that the plaintiff could not have, by any sort of action or otherwise, collected any part of said collateral notes referred to in said notice, at any time since the said collateral notes were pledged, if at all, as security for the note sued upon; that the makers of each and all of said collateral notes, at all times since the pledge of said notes, have been totally insolvent, and not coercible at law; that said sums have been discharged in bankruptcy proceedings; and that the defendants, and each of them were tendered the said collateral by the plaintiff, and it was stated by the plaintiff to said defendants that said collateral was valueless, and if said defendants desired said collateral, plaintiff would surrender and release same to said defendants; that one of the indorsers upon a collateral note was a nonresident of the state of Mississippi. The court refused to reopen the case and allow the notice to be filed upon the theory that the evidence had been introduced without objection and that the plaintiff had ample notice by proof introduced, of the evidence relied upon. Thereupon the defendants requested and were granted a peremptory instruction upon which a verdict was rendered and judgment entered adjudging defendants not liable for the demand sued upon, and, from that, this appeal was prosecuted.
Further facts will be stated in dealing with the specific questions raised by this appeal.
The first question that arises for consideration is whether or not the appellant is entitled to the note sued on, and whether it is authorized to bring suit in its own name.
It is contended by the appellees that the appellant has neither the legal title, nor beneficial interest in the note, and, consequently, has no right to sue upon the note in its own name, although the note was payable to bearer, and was in the physical possession of the appellant.
In the agreement of 1924 the following paragraph is a stipulation with reference to the mortgage company's rights, and appears to be an assignment of the right:
"The mortgage company shall and does hereby sell, transfer, and assign to the bank, without recourse upon it, the said mortgage company, its entire right, title, and interest in and to all of the aforesaid notes, and its beneficial interest in and to all real estate held as aforesaid, at and for the sum of three million three hundred thirty-four thousand one hundred ninety-three dollars and forty-one cents, to-wit, the aggregate amount of the debt, principal and interest, owed by the mortgage company as of November 15, 1924, to the several creditors. In payment therefor the bank shall as of November 15, 1924, execute its several promissory notes which shall bear date of November 15, 1924, shall be payable to the mortgage company, shall draw interest from the date thereof at the rate of five per centum per annum, and shall mature on December 1, 1927, and shall bear notation of the fact that said notes are issued in accordance with this creditors' agreement, and are subject to the terms thereof. Said notes of the bank shall be secured by the pledge of all the collateral purchased by the bank from the mortgage company in accordance with this paragraph, which shall include all rights, interest, and claims of whatsoever nature of the mortgage company in and to all notes, equities, real estate, choses in action, and properties of every description, real, personal, or mixed, and also by the pledge of all the collateral comprising the new pool hereinafter provided for."
Chapter 134, Laws of 1916 (section 511, Hemingway's 1927 Code), reads as follows:
"The assignee of any chose in action may sue for and recover on the same in his own name, if the assignment be in writing. In case of a transfer or an assignment of any interest in such chose in action before or after suit brought, the action may be begun, prosecuted and continued in the name of the original party, or the court may allow the person to whom the transfer or assignment of such interest has been made, upon his application therefor, to be substituted as a party plaintiff in said action. If in any case a transfer or assignment of interest in any demand or chose in action be made in writing before or after suit is filed, to an attorney or firm of attorneys, appearing in the case, it shall be sufficient notice to all parties of such assignment or transfer, if such assignment or transfer be filed with the papers in said cause, and such attorney or attorneys shall not be required to be made parties to said suit."
The court is of the opinion that the plaintiff was entitled to bring suit in its own name, for the use and benefit of the bank and its creditors, under this statute, and under the contracts and agreements and decrees above set out and shown in the record. There is no merit in the pleas and contention that the plaintiff did not have any right of action on the note in question.
The next general question is whether or not the defendants were released from liability on the note by the course of dealing with it set forth in the pleadings and in the evidence in the case.
It appears from the evidence of the plaintiff that certain collateral notes were placed with the note involved in suit as collateral security, and that no steps had been taken by the appellant for the collection of said collateral notes, and that, at the time of the trial, the notes so placed as collateral had become barred by the statute of limitations, so that, thereunder, a complete defense, if availed of by the makers of said notes, existed to them.
There is no proof, however, in the record to show that the makers of the note sued on here ever made any request or demand of the appellant to take such action, or to bring any suit on said notes to prevent the statute of limitations from running, and there is no proof to show that had suit been instituted at that time the notes could have been collected by suit.
Ordinarily, the holder of a collateral note is not obliged to bring suit thereon unless requested to do so by some interested party, having legal title to the notes, or the party who makes the principal note to which such collateral is attached, and the mere nonaction of a holder of a collateral note does not entitled the parties to the principal note to a release from such obligation. Furthermore, when suit was instituted in 1925, the statute of limitations had not run against said collateral notes, and there was no plea or writing suggesting specifically that this course would be taken, nor was there any effort to bring in the parties liable on the collateral notes, to secure judgment thereon in satisfaction of the debt. The defense to the note sued on must be judged by conditions and the status existing at the time the suit was instituted, and not by the status existing at the time of the trial.
The pleadings set up by the several defendants are very vague and general, and it is doubtful if they are sufficient to put the plaintiff on notice as to what defense would be available thereunder. It may be that joining issue on such pleadings rendered them sufficient as such to give notice of any defense that existed, but it did not give notice of the statute of limitations, because this statute had not then run. So far, then, as the failure to collect the collateral notes is concerned, it was not a defense to the suit, although by proper pleadings the amount might have been used to diminish the recovery, but to have availed of these pleadings they should have been more specific.
The pleadings set up as an attempted defense to the note that certain of the makers of the note sued on had been released, and that, by agreement with the appellant and creditors of the Planters' Bank, this release had the effect of releasing all the makers of the note, as they were mere accommodation makers.
In our opinion, the note sued on is a joint and several note, subject to the provisions of sections 2323, 2324, Hemingway's 1927 Code (sections 2682, 2683, Code of 1906), known as the "Joint and Several Debtor Statutes." Therefore, the effect of the settlement with certain of the makers does not release the other makers from the entire obligation, as might be the case with the mere joint liability under which the makers would not be severally liable, but the effect of the release and settlement in the case at bar would be only to reduce the amount of recovery to the proportion which those released bear to those not so released. It is not necessary from the record before us to decide whether, if some of the makers sued were insolvent, those released by the agreements would be liable for the pro rata or share of such insolvent debtor, and we do not decide anything with reference to this question, but we do decide that it is not a complete release of all the makers of the note, although the parties released may have been, or they may not have been, insolvent. Consequently, the peremptory instruction given for all the defendants was erroneous as to those not released, but the peremptory instruction as to E.L. Anderson, Earl Brewer, W.T. Allen, and A.J. Mosley was correct and the judgment as to them will be affirmed, but will be reversed as to the others.
At the conclusion of the evidence, the defendants obtained leave to amend the pleadings so as to set up the statute of limitations, and this amendment was, by the court, allowed after the testimony had been closed.
The appellant sought to show by counternotice, and offered proof, that the notes placed as collateral, and which were barred, were at no time, after the pledging of them as collateral, collectible by coercion, and that the makers thereof were insolvent or bankrupt, and that no effort would have enabled the plaintiff to have collected said money from said makers of such collateral.
We think, under the circumstances of the case, that the court below should have reopened the case and have permitted the counternotice and proof thereunder, and should have determined the result by further proceedings and deliberation.
As we have said before, the statute of limitations was not a defense to the note sued on, but could have been used as a defensive matter by showing that the pledgee, appellant here, was in default of its duty thereunder.
The judgment of the court below is therefore reversed as to all the defendants, except E.L. Anderson, Earl Brewer, W.T. Allen, and A.J. Mosley.
Reversed in part, and affirmed in part.