Deposit Guaranty Nat. Bank v. Shipp

• Decision Date: 28 November 1967
• Docket Number: No. 10897,10897
• Citation: 205 So.2d 101
• Parties: DEPOSIT GUARANTY NATIONAL BANK, Plaintiff-Appellee, v. William Carl SHIPP and Succession of Carl Shipp, Jr., Defendant-Appellee, Mrs. Louise Stevens Shipp, Executrix, Defendant-Appellant.
• Court: Court of Appeal of Louisiana — District of US

Page 101

205 So.2d 101

DEPOSIT GUARANTY NATIONAL BANK, Plaintiff-Appellee, v. William Carl SHIPP and Succession of Carl Shipp, Jr. Defendant-Appellee Mrs. Louise Stevens Shipp, Executrix, Defendant-Appellant.

No. 10897.

Court of Appeal of Louisiana, Second Circuit.

Nov. 28, 1967.

Rehearing Denied Jan. 11, 1968.

As Amended Jan. 11, 1968.

Writ Granted Feb. 19, 1968.

Thompson, Thompson & Sparks, Monroe, for appellant.

E. Rudolph McIntyre, Winnsboro, Cotton & Bolton, Rayville, John Barkley Knight, Jr., Winnsboro, Butler, Snow, O'Mara, Stevens & Cannada, Jackson, Miss., for appellee Deposit Guaranty Nat. Bank.

Before GLADNEY, AYRES and BOLIN, JJ.

GLADNEY, Judge.

The Deposit Guaranty National Bank, as successor to Deposit Guaranty Bank & Trust Company of Jackson, Mississippi, instituted this action to obtain judgment on two promissory notes. Named defendants therein are William Carl Shipp and the Succession of Carl Shipp, Jr. After trial judgment was rendered in favor of plaintiff, and Louise Stevens Shipp, the Executrix of the Succession of Carl Shipp, Jr., has lodged this appeal. The defendant William Carl Shipp has not appealed.

The notes sued upon bear the dates of October 29, 1964 and February 5, 1965 and were made payable on demand to the Deposit Guaranty Bank & Trust Company for the principal sums of $213,127.00 and $22,000.00, respectively. Each note was signed by William Carl Shipp as maker and purportedly bears the endorsement of Carl Shipp, Jr.

Prior to 1964 William Carl Shipp, the son of Carl Shipp, Jr., was engaged in a business concerned with investments in oil properties which required financing. He formed a connection with the Deposit Guaranty Bank & Trust Company, which, in the ordinary course of business, loaned him the money evidenced by the two notes. Some time after the confection of the notes the plaintiff bank succeeded to the assets of the Deposit Guaranty Bank & Trust Company and thus acquired title to the notes.

In the transactions between the bank and William Carl Shipp, William D. Mounger personally handled on behalf of the bank all matters involving the indebtedness herein sued upon, including the administration of the collateral security pledged for the payment of these notes. In such a capacity he collected the revenues accruing from the pledged security and applied it towards the liquidation of the indebtedness evidenced by the notes. As the several advances were obtained by William Carl Shipp from the bank only 90% Was made available for unrestricted use by the borrower, the bank withholding 10% As 'compensating balances'. The sum so withheld was included in the principal of the note but bore no interest payable by the bank and could only be used by the borrower with the consent of the bank. The purpose of this operation, which is not unusual in the banking business, was for the bank to retain such a balance in its hands as an additional security for the loan.

It is significant that on the face of the note dated September 5, 1965, the printed word 'six' has been lined through and the word 'seven' written. The change is initialed 'W.D.M.' This change which appellant terms an alteration is explained by Mounger, who testified that he made it to have the note correspond with the rate of interest agreed upon between the bank and William Carl Shipp.

No other irregularities or changes appear upon the face of either note. Evidence was adduced by plaintiff for the purpose of proving the signature of Carl Shipp, Jr. It included the testimony of William Carl Shipp, W. D. Mounger and J. R. Donnell and is convincing that Carl Shipp, Jr., did in fact endorse the notes as an accommodation party for the purpose of enabling his son, William Carl Shipp, to secure additional loans from the bank. Appellant in the trial court, in argument, and in brief before this court urges that plaintiff has failed to prove the genuineness of the signature of Carl Shipp, Jr. The evidence tendered in support of this position when considered in its most favorable light simply gives rise to an inference that the date appearing on the note, that is, October 29, 1964, may not have been the same date on which the endorser placed his signature thereon and there may have been a variance of a few days between the signing by Carl Shipp, Jr. and the dating of the note. The evidence does indicate that the note bearing date February 5, 1965 was not completely filled out or was a blank note at the time it was endorsed by Carl Shipp, Jr.

The defenses relied upon by the Executrix to avoid liability upon the notes may generally be stated to be: denial of the signature of Carl Shipp, Jr.; denial that plaintiff bank is a holder in due course; that the note of October 29, 1964 was altered as to the rate of interest; that the note of February 5, 1965, if executed by Carl Shipp, Jr., was signed in blank; that the withholding of 10% Of the monies advanced by the bank resulted in a failure of consideration pro tanto and constituted usury; that the collateral was improperly handled; and that the accommodation endorser was secondarily liable and its rights against the collateral have not been preserved. Further, it is argued that a proper claim has not been filed with the Executrix; that the judgment as rendered against her is irregular; and exception is taken to the judgment of the trial court in rejecting its reconventional demand against William Carl Shipp.

The defenses so mentioned are discussed seriatim, but before answering the arguments presented, it should be noted that the liability of an accommodation party is as defined in LSA-R.S. 7:29¹ which states that such a person is liable on the instrument to a holder for value, notwithstanding such holder at the time of taking such instrument knew him to be only an accommodation party. Our jurisprudence has interpreted this provision to mean that the accommodation party is primarily liable to the same extent as the maker who receives value. Bank of Baton Rouge v. Hendrix, 194 La. 478, 193 So. 713 (1940); W. F. Brown and Sons v. Easterly, La.App., 4 So.2d 73 (1st Cir. 1941); Seelig v. Brusso, La.App., 121 So.2d 28 (Orl.Cir.1960).

We have heretofore stated our conclusion that the signatures of Carl Shipp, Jr., appearing upon the notes are genuine and fully supported by the testimony of credible witnesses. The record leaves no doubt Carl Shipp, Jr., endorsed the two notes to enable William Carl Shipp to secure needed financing from the bank.

The postulation that plaintiff bank is not a holder in due course is of no importance for the reason that the same legal and equitable defenses are available to the Executrix against the plaintiff bank as would have been available to her against the Deposit Guaranty & Trust Company. For all practical purposes the present bank stands in the shoes of its predecessor with respect to the parties sought to be held liable on the note. The record reveals that the Executrix has fully presented these special defenses to the trial court and to this court.

It is urged that the note of October 29, 1964 was altered as to the rate of interest. The change on the face of the note does not constitute a material alteration. As related supra, full and proper explanation was made by Mounger, the official of the bank.

Appellant argues that the note of February 5, 1965 is invalid as to Carl Shipp, Jr., for it was not completely filled out at the time it was signed by him. LSA-R.S. 7:14 provides for such a situation.² Mounger testified that in the banking business it is not unusual for a party to endorse promissory notes containing blanks to be afterwards filled in. A pertinent comment is found in 10 C.J.S. Bills & Notes § 136, p. 583:

'The delivery of an inchoate or incomplete bill or note, as where the instrument is delivered with blanks left for the insertion of necessary details, or where a signature on a blank paper is delivered with the intention of having a complete instrument written over it, confers presumptive authority on the person to whom it is delivered, and on subsequent holders, to complete the instrument by filling the blanks, or by writing the instrument, as the case may be, in the way apparently contemplated by the signer, with matter in general conformity with the character of the writing; and the provision of the Negotiable Instrument Act that, 'where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein,' * * *' (10 C.J.S. Bills & Notes, § 136, pp. 583--584)

No evidence was presented to show that William Carl Shipp or any official of the bank violated the implied or expressed authority of Carl Shipp, Jr., in filling in the blank places in the note. Such notes were executed to correspond with the obligations of William Carl Shipp as evidenced by said notes and it must be assumed the intention of the accommodation endorser was to be bound by the completed note.

Next, it is contended the endorsements of Carl Shipp, Jr., must be considered as discharged when plaintiff withheld from the loans made by it the sums which went into the 'compensating balances'; and that such action resulted in usury and a failure of consideration. The plea of usury so advanced is predicated on the practice of the bank in withholding 10% From each loan. The amounts so withheld totaled $28,000, but it remained the property of the borrower. Counsel argues that such withholdings are in fact discounts which in the instant case have brought about the equivalent of an interest charge of 17%. As such security remains the property of the borrower and is subject to being applied as a payment on the debt, it may not be considered as a discount of the loan. The rate of interest so charged in each note is 7% Per annum and is not unlawful. It is our conclusion, therefore, that no irregularities in the handling of the notes have been shown, and the charge that...