Atkinson v. National Bank of Commerce of Mississippi

• Decision Date: 03 August 1988
• Docket Number: No. 57738,57738
• Citation: 530 So.2d 163
• Parties: Peter K. ATKINSON and Norma A. Atkinson v. NATIONAL BANK OF COMMERCE OF MISSISSIPPI.
• Court: Mississippi Supreme Court

Page 163

530 So.2d 163

Peter K. ATKINSON and Norma A. Atkinson v. NATIONAL BANK OF COMMERCE OF MISSISSIPPI.

No. 57738.

Supreme Court of Mississippi.

Aug. 3, 1988.

Barry J. Walker, Roy O. Parker & Associates, Tupelo, for appellants.

Ralph E. Rood, Gholson, Hicks & Nichols, Columbus, for appellee.

En Banc.

ROBERTSON, Justice, for the Court:

I.

This action arises from a failed business venture. The debtors complain that upon consent sale of a Chevrolet van used as collateral, the bank misapplied and converted a part of the proceeds. The bank counterclaimed on an unpaid note given for a loan for operating capital. The circuit court summarily resolved all issues in favor of the bank. Though the matter is not quite so simple as the bank would have one think, we affirm.

II.

In 1982 Peter K. Atkinson and Norma A. Atkinson were operating a business in Amory, Mississippi, known as Park Hotel and Restaurant. In July of 1982 the Atkinsons were in need of operating funds and approached National Bank of Commerce of Mississippi ("NBC" or "the bank"). Apparently, the Atkinsons had a prior banking connection with NBC.

As evidence of a loan for operating capital the Atkinsons on July 29, 1982, gave NBC a note in the principal sum of $20,691.92 calling for payments in eleven monthly installments of $1,300.00 each, beginning September 1, 1982 with a final balloon payment of $8,792.47. This note provided that NBC would have a security interest in any money at any time in possession of the bank and belonging to the Atkinsons. The note further provided that NBC could, at its option, in the event of default, set off any monies belonging to the Atkinsons held by the bank against the note or any obligation of the Atkinsons. See Deposit Guaranty National Bank v. B.N. Simrall & Son, 524 So.2d 295, 299-300 (Miss.1987). In addition, as evidence of sums advanced to enable the Atkinsons to meet their accounts payable, they gave NBC a second note, this one in the principal sum of $1,077.82 payable on or before October 27, 1982. This note was secured by a 1979 Chevrolet van.

Six months prior to all of this, NBC had procured a continuing guaranty executed January 22, 1982 by Scribner Equipment Company, Inc., wherein Scribner guaranteed payment not to exceed $20,000 regarding the debts of Pete and Norma Atkinson. We sense that the record does not reveal all that is to be told regarding the facts and circumstances of this guaranty.

As fate would have it, the Atkinsons closed the doors of their business at the Park Hotel and Restaurant in October of 1982. Quite apparently the Atkinsons had fallen into arrears in their obligations under the $20,000 note. At some point--the date is not clear from the record--there were discussions between the Atkinsons and the bank to the effect that "the dates had been changed [extended]", provided the Atkinsons would pay the interest which was approximately $689.00.

What is clear is that on January 6, 1983 the Atkinsons sold the 1979 Chevrolet van to H.G. Swanson. Swanson paid $3,200.00 and received a lien free title. The bank handled all disbursements. Out of the proceeds of the sale, the bank applied $1,143.00 to retire in full the note which had been secured by the van. The bank then delivered a check for $1,000.00 to the Atkinsons and paid the balance, some $1,057.00, to Scribner Equipment Company, Inc. The record does not reflect that the interest payment of $689.00 was made. At this moment, apparently, the Atkinsons had funds with which to make that payment.

What appears to have triggered this lawsuit was the fact that the bank gave Scribner part of the money instead of delivering to the Atkinsons the full $2,057.00. On February 11, 1983, the Atkinsons commenced this civil action by filing their complaint in the Circuit Court of Oktibbeha County. NBC was named as defendant. The complaint charged NBC with unlawful conversion of a portion of the proceeds of the sale of the van and demanded $2,057.00 in actual damages and $5,000,000.00 in punitive damages.

On March 2, 1983, the bank answered, denying the essential allegations of the complaint, and asserting a counterclaim based upon the $20,000 note which was then unpaid. The depositions of the Atkinsons were taken on May 2, 1983.

This lawsuit then went into the deepfreeze for over three years. The next filing of consequence took place on July 3, 1986. At that time NBC moved for summary judgment asking, first, dismissal of the Atkinsons' original claim and, second, for judgment over on its counterclaim on the $20,000 note. After receiving the briefs and argument of counsel, the Circuit Court on July 31, 1986, entered judgment, first, dismissing the Atkinsons' complaint with prejudice. Thereafter, the Court entered judgment on NBC's counterclaim against Atkinsons, jointly and severally, for the principal sum of $18,665.46, together with interest thereon in the amount of $8,818.71 and attorneys fees in the amount of $4,122.63, for a total judgment of $31,606.80, plus costs. The judgment further provided that it would bear interest from date of the contract rate of five percent over the Federal Reserve discount rate, adjusted quarterly thereafter, in conformity with the terms of the underlying note.

In the meanwhile, Scribner Equipment Company, Inc. had begun making payments in discharge of its liability to NBC based on the continuing guaranty agreement. Scribner paid $5,000 on October 15, 1985, and a like amount on the 15th day of the next three months with the last payment on January 15, 1986, discharging its full $20,000 obligation under the guaranty.

III.

The Atkinsons argue on appeal that they are entitled to a reduction of the judgment against them for the $20,000 paid by Scribner and for a recomputation of interest following the reduction. The argument, if we comprehend it, is that the $20,000 paid by Scribner operated to satisfy a like amount of the Atkinsons' obligation to the bank and that, to that extent, the Atkinsons stood discharged.

The Atkinsons rely on the old case of Rawlings v. Poindexter, 14 Miss. 66 (1850). In Rawlings Mason was the maker of a bill of exchange for $4,000. Lanier endorsed the note to Rawlings. On demand, Lanier paid $2,000 of the $4,000 debt to Rawlings. The Court said:

The first charge, "that if any part of the bill was paid by the first endorser, the second endorser was discharged from liability to that extent", was correct, and requires no comment.

The statement on its face renders Rawlings quite distinguishable. There, payment by one endorser discharged a second endorser. Nothing in Rawlings stands for the proposition that payment by an endorser or guarantor discharges the original maker. Put otherwise, Rawlings is a case between two parties each secondarily liable. How the Atkinsons divine any comfort in Rawlings escapes us, as not one word in the opinion suggests that payment by a party secondarily liable operates to discharge primary obligors.

The rule in this state is found in Stribling Bros. Corporation v. Euclid Memphis Sales, 235 So.2d 239, 241-42 (Miss.1970). Payment by a guarantor of another's indebtedness does not extinguish the obligation of the debtor to pay according to his agreement. Whatever may be the relationship in rights of the payee and guarantor, the fundamental scheme of the transaction remains, and that scheme is that the primary obligors, the Atkinsons, are obligated to pay the full measure of the indebtedness provided in their contract.

To be sure, what Scribner as guarantor has paid NBC, Scribner had a right to recover of and from the Atkinsons. See Comfort Engineering Co., Inc. v. Kinsey, 523 So.2d 1019 (Miss.1988); Stribling Bros. Corp. v. Euclid Memphis Sales, 235 So.2d 239, 242 (Miss.1970); Buckley v. Guilbert, 250 Miss. 240, 244, 164 So.2d 743, 744 (1964). This is nothing more than conventional subrogation law. See First National Bank of Jackson v. Huff, 441 So.2d 1317, 1320 (Miss.1983).

In a sense the Atkinsons are arguing that NBC had no standing to sue with respect to the $20,000 portion of the Atkinsons' obligation which had been paid by Scribner. Of course, that payment did not discharge the Atkinsons' entire indebtedness to NBC and the Atkinsons do not contend otherwise.

Scribner paid in discharge of its own obligation, not the Atkinsons'. The payment made by Scribner did not diminish the Atkinsons' liability on their original obligation to any extent. The question is who can sue for their default. For the present it is a sufficient answer that NBC, as the holder of the note, can bring suit against the Atkinsons and enforce all obligations thereunder, although to the extent of Scribner's payment NBC's recovery over and above the full discharge of the indebtedness held by NBC is in trust for Scribner. See Madison Square Bank v. Pierce, 137 N.Y. 444, 33 N.E. 557, 559 (1893).

No reason on principal has been articulated why a payee such as NBC should not be allowed on these facts to maintain the suit where the primary obligor has in no way discharged his obligation and where that obligation well exceeds that paid by the guarantor. In procedural parlance NBC is a real party in interest. See Rule 17(a), Miss. R. Civ. P.; Navarro Savings Association v. Lee, 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980).

In the interest of avoiding multiplicity of actions, we hold on these facts that an action such as this can be maintained by NBC, only that, if NBC recovers more than enough to make itself whole, that excess as a matter of law is held by NBC in trust for Scribner.

Here, however, we encounter a problem. No one disputes that Scribner has paid $20,000 to NBC under the guaranty. No one seriously disputes that on these facts Scribner would ordinarily have, via subrogation or whatever theory one might articulate, a right to recover that $20,000 of and from the Atkinsons. The Atkinsons say, however, that, if such a suit were brought by Scribner, they would have...