Opinion
No. 31387.
November 5, 1934.
1. BILLS AND NOTES.
Indorsers of notes secured by mortgage held not liable thereon where proceeds of mortgaged property, which were sufficient to discharge notes, were first applied to advances made to makers of notes without indorsers' knowledge.
2. GUARANTY.
Where there is guaranty of limited part of debt, any payments made by debtor must be applied first to discharge portion guaranteed.
APPEAL from the Chancery Court of Warren County.
Wynn, Hafter Lake, of Greenville, for appellant.
The question involved here is whether or not a surety or endorser on a negotiable instrument, which negotiable instrument is a note evidencing an indebtedness, which indebtedness is secured by a deed of trust securing, not only that particular indebtedness, but any future advances that might be made, can demand that payments made by the mortgagor to the mortgagee from proceeds of the security conveyed by the deed of trust, must be first applied to the payment of that part of the secured debt upon which the endorser is liable. It should be borne clearly in mind that the endorsers in this case were, according to the agreed statement of facts, fully aware of and are chargeable with all the provisions in the trust deed to the effect that future advances were also secured by the deed of trust. It is submitted that no endorser has any such right.
Without a doubt, Mississippi law and the decisions of this court lay down the rule that, in the absence of any agreement between debtor and creditor, payments made by the debtor to the creditors will be applied by the court in the manner most beneficial to the debtor.
Sunflower County v. Bank of Drew, 101 So. 192.
The credit corporation acted for the debtor's good, in that the application which it made of the payments received would have, had the endorsers discharged their obligations, as the corporation requested, quickly liquidated the debtor's account.
Kortlander v. Elston, 52 Fed. 180; Matthews v. Switzer, 46 Mo. 301.
Payments will be applied for the debtor's benefit, in the absence of any agreement.
Consolidated Naval Stores Co. v. Wilson, 82 Fla. 396, 90 So. 461.
Dent, Dent Robinson, of Vicksburg, for appellee.
If proper application of the proceeds of the sales had been made to the specific notes endorsed, and secured by paramount lien, the defendants, Martin and Miller, would have been released by the payment of the specific notes secured and endorsed by them.
The lien created by the trust deed securing said notes was a first lien, paramount to all other liens, and, when the properties were sold, the proceeds of such sales should have been applied to the extinguishment of this first and paramount lien.
Consolidated Naval Stores Company v. Wilson, 82 Fla. 396, 90 So. 461, 21 A.L.R. 688.
Where there is a guaranty of a limited part of a debt, any payment made by the debtor must be applied to discharge that portion.
21 R.C.L. 108, 109.
Where the money paid or property delivered by the principal to the creditor is the identical money or property for the payment or delivery of which the guarantor or surety is bound, or the payment is made with the proceeds or fruits of the very contract, business, or transactions covered by the obligation of the surety or guarantor, the latter is not bound by an application of the payment or property to some other debt of the principal — at least, if the source of the funds is known to the creditor, or person receiving the payment; and in such case the surety or guarantor is equitably entitled to have the payment made or the property delivered applied to the discharge of the debt, or the liquidation of the obligation, for which he is bound.
21 A.L.R. 716; 21 R.C.L. 108; Consolidated Naval Stores Co. v. Wilson, 82 Fla. 396, 90 So. 461, 21 A.L.R. 688; Jones, Collateral Securities, secs. 550, 551; First National Bank v. Scott, 123 N.C. 538, 31 S.E. 819.
It is also true that, if the indorser has agreed to be security for a limited part of the debt only, any payment upon the debt from any funds of the debtor must be applied upon that part of the debt for which the indorser is security.
21 R.C.L. 108; 21 A.L.R. 688; St. Louis San Francisco Ry. Co. v. Ravia Granite Ballast Co., 174 P. 252, 21 A.L.R. 690; 21 R.C.L. 116; In re Bennett, 153 Fed. 673, 690, 82 C.C.A. 531.
Appellant filed its bill in the chancery court of Warren county against Eustice Conway and his wife, Stella Conway, principal makers of notes held by appellant, upon which appellees were indorsers, to recover the balance due thereon. The case was tried on bill, answer, and agreed facts, resulting in a decree against the principal makers of the notes, and in favor of appellees, from which decree appellant prosecutes this appeal.
The agreed facts were substantially as follows: In February, 1932, Conway and his wife, owners of a plantation in Warren county, applied to appellant and obtained what is known as a production loan in the sum of five thousand seven hundred dollars. To secure the loan, they offered a second mortgage on their lands (the Federal Land Bank having a first mortgage for about their value), and a first mortgage on their live stock, crops, and farm equipment. Appellant declined the loan unless additional security was given. The Conways offered appellees as indorsers on the notes (the indebtedness being evidenced by several notes). Appellant accepted the offer, and thereupon the indorsement was made, the notes delivered, and the mortgage executed. When appellees indorsed the notes, they were informed by Eustice Conway, the husband, that they were being secured by a mortgage on their land, crops, stock, and other farm equipment. The mortgage provided for additional advances, if necessary, by appellant to the Conways to enable them to harvest and market their crops. In the summer or early fall they secured an additional loan for that purpose. Appellees had no knowledge of any such provisions in the mortgage nor of the additional loan thereunder until shortly before this litigation began. When the additional loan was made, the Conways agreed with appellant that it should be paid out of the proceeds of the mortgaged property first, and what was left should be applied to the notes. This agreement, however, was not contained in the mortgage, and appellees had no part in it, nor knowledge of it. We do not mean to intimate, however, that the result would have been different if it had been contained in the mortgage. Appellant carried the harvesting and marketing advances in an open account. The proceeds of the mortgaged property were applied by the appellant first to these advances and then to the notes, leaving a balance due of one thousand two hundred sixty dollars and two cents. If, they had been applied first to the notes, there was a sufficiency to discharge the notes and thereby relieve appellees of liability as indorsers.
The mortgage provided, among other things, that the holder of the notes should have a prior lien for their payment. Under the facts of this case, it is at once apparent that, if the advances are entitled to preference payment over the notes, appellees became guarantors for the payment not only of the notes but also of the advances, notwithstanding the advances were made without their knowledge or consent.
The rule is that, where there is a guaranty of a limited part of a debt, any payments made by the debtor must be applied first to discharge the portion guaranteed. 21 R.C.L. 108; Jones, Collateral Securities, secs. 550, 551.
We think Solomon v. First Nat. Bank, 72 Miss. 854, 17 So. 383, is decisive of this question in appellee's favor. In that case Fewell owed the bank two notes, one secured by Solomon's indorsement and the other unsecured. Later he gave the bank a deed of trust to secure both of the notes. This was done with Solomon's consent. The court held that the note on which Solomon was indorser was entitled to priority of payment out of the mortgaged property over the other note, using this language: "The property was supposed to be sufficient to secure both notes, and he consented that both might be inserted in the deed and secured thereby, but, under the circumstances of this case, it is not reasonable to infer that he intended to waive his priority of right to the security it afforded, and there is no evidence tending to show that the bank officers so understood the transaction."
Affirmed.