Bright v. Mack

• Decision Date: 01 June 1916
• Docket Number: 6 Div. 353
• Parties: BRIGHT v. MACK et al.
• Court: Alabama Supreme Court

72 So. 433

197 Ala. 214

BRIGHT v. MACK et al.

6 Div. 353

Supreme Court of Alabama

June 1, 1916

Rehearing Denied June 30, 1916

Appeal from Chancery Court, Cullman County; James E. Horton, Jr. Chancellor.

Suit by J.M. Bright against John Mack and others. From a decree for respondents, complainant appeals. Affirmed in part, and in part reversed and rendered.

F.E St. John and Sample & Kilpatrick, all of Cullman, for appellant.

A.A Griffith, of Cullman, and Callahan & Harris, of Decatur, for appellees.

MAYFIELD J.

The bill is primarily to foreclose a mortgage, and incidentally seeks a decree against the sureties, who signed several notes secured by the mortgage, for the balance due after the mortgaged property was sold, and also seeks a decree against parties who had acquired or converted certain property covered by the mortgage.

The case made by the bill, and the findings of the chancellor in respect thereto, is well stated by the chancellor as follows:

"The main purpose of the bill is the foreclosure of a mortgage against the defendants, John Mack and Charles Mack, and, in case the proceeds of the sale of the mortgaged property are insufficient to pay the mortgage debt, that a judgment for the deficiency be rendered against the mortgagors as well as against the two sureties, Wm. Schuman and Al. Richter, on the notes, which notes the said mortgage is given to secure. There is a series of the notes, aggregating in amount $10,000, and each note due on a certain date in the future, the due date of each note being different from the others. The mortgage contained a clause providing 'if said grantors shall fail at maturity of any of said notes to pay the same in full, then all of said notes shall at once become due and payable.' The sureties claim, and the proof clearly shows, that this provision was entered into between the principals without their knowledge or consent; and in consequence thereof they are discharged.

"The law is well settled that any intentional material change in the terms of the contract by the original parties, without the consent of the surety, will discharge the surety. Hadan v. Brown, 18 Ala. 643; Anderson v. Bellenger, 87 Ala. 334. 6 So. 82, 4 L.R.A. 680, 13 Am.St.Rep. 46. It has been held that the holder of promissory notes extending time of payment to maker by contract, upon sufficient consideration, discharges an apparent maker that he knows to be a surety, and whose consent to the extension has not been given. This principle has been in effect held so often as to need no citation of authority.

"Will a binding contract as here presented, accelerating the time of payment of the notes, discharge the surety? Upon principle it seems it would. The only case exactly in point which the court has read is the case, cited by the solicitors for defendants, of Peru Plow & Wheel Co. v. Ward, 1 Kan.App. 6, 41 P. 64.

"Furthermore, a surety upon paying the debt to the principal has the clear right to be substituted in the place of the creditor as to all securities held by the latter for the debt. Upon the sureties paying the notes which they signed as same became due, they would have been subrogated to all the rights of the complainant in and to the mortgage and the property therein included. By a clause in the mortgage, complainant had the right to declare all notes due upon default of any one of them and could foreclose the mortgage. Must the sureties, in order to protect their right to be substituted to the rights of complainant in the mortgage, be required to pay the entire indebtedness contrary to their undertaking upon the default of one note? They had the right, they may have prepared, to pay the notes as they matured and have had turned over to them the securities the complainant held; the acceleration clause in the mortgage, by the authority of which complainant has foreclosed or is foreclosing his mortgage, has impaired, or rather destroyed, this right. Were they required to pay these notes as they matured, they would have the right to demand of complainant the transfer of the mortgage unimpaired, which he had already foreclosed. It would be no answer to say that in this particular case it would be better for the sureties that the mortgage was foreclosed. The court is therefore of the opinion that complainant is not entitled to any relief against the sureties on the note.

"The court is further of the opinion that complainant is entitled to no relief against the defendant Kinney. The stock he took, with the exception of one horse, was under prior mortgages. This horse he took as payment of a debt due him by defendants, Mack Bros. The indebtedness was existing at the time of the execution of the mortgage on which this suit is based. The contract whereby the mortgagors were given the privilege of exchanging and swapping the personal property rendered the mortgage void as to creditors."

We concur with the chancellor in his finding and holding, except that we are of the opinion that the defendant Kinney was liable to the mortgagee, as for the horse which he purchased from the mortgagors, in payment of a pre-existing indebtedness due him from the mortgagors. The mortgage in question authorized the mortgagors to exchange the property mortgaged, for other property, which was to take the place of and stand in lieu of the property mortgaged. The provision in question was as follows:

"It is hereby agreed and understood by and between the parties to said mortgage that said John Mack and Charlie Mack have the privilege of exchanging or swapping any of the personal property contained in said mortgage this day executed to J.M. Bright, and the property exchanged for is to stand for security to the said J.M. Bright in the place of the property exchanged. Said J.M. Bright hereby agrees and binds himself to release such of said property as is exchanged or swapped by the said John Mack and Charlie Mack and accept in lieu thereof a mortgage on said property exchanged for to stand for security of the notes described in said original mortgage."

This we hold was not authority to sell or dispose of the property otherwise than by "exchanging or swapping," as above provided. Certainly it did not authorize a sale for the pre-existing debt, which, from its nature, could not be substituted. Such, or a similar provision in a mortgage, or by a subsequent agreement in writing, is valid as between the parties to the mortgage. Jones on Chattel Mortgages, § 71; Winslow v. Jones, 88 Ala. 496, 7 So. 262; Bloch & Co. v. Edwards, 116 Ala. 90, 22 So. 600; Averyt Drug Co. v. Ely-Robertson-Barlow Co., 69 So. 932.

Our cases hold that by reason of our statutes such an agreement must be in writing, in order for it to constitute a mortgage on the property substituted; and all the authorities hold that such a provision is not good as a mortgage upon the substituted property as against a bona fide purchaser of the substituted property, who has no knowledge or notice thereof and that recording the mortgage or agreement does not serve as constructive notice as to the substituted property, because it cannot be described so as to give notice that it was exchanged for other property in the mortgage. These provisions, however, do not destroy the efficacy of this agreement as to exchange of property; because the substituted property is not...