Dies v. Wilson County Bank

• Decision Date: 04 April 1914
• Citation: 165 S.W. 248,129 Tenn. 89
• Parties: DIES et al. v. WILSON COUNTY BANK.
• Court: Tennessee Supreme Court

165 S.W. 248

129 Tenn. 89

DIES et al. v. WILSON COUNTY BANK.

Supreme Court of Tennessee.

April 4, 1914

Certiorari to Court of Civil Appeals.

Action by the Wilson County Bank against J. L. Dies and others. Judgment in the circuit court for the plaintiff was modified and affirmed by the Court of Civil Appeals, and defendants bring certiorari. Affirmed.

W. R Chambers, of Nashville, for plaintiff.

Lillard Thompson, of Lebanon, for defendants.

WILLIAMS J.

This case was brought upon a note dated September 30, 1910, in terms as follows:

"Four months after date we promise to pay to the order of the Lebanon National Bank, one hundred ninety-eight & 35/100 dollars. Renewal of note due Wilson County Bank.

"The drawers and indorsers severally waive presentment for payment, protest and notice of protest, and nonpayment of this note, and in case of suit agree to pay court costs and all reasonable attorney fees for collecting same, and the principal may be granted further time, after due, from period to period, on payment of interest, without releasing sureties.

"[Singed]

R. A. Denton.

"J. R. Odum, Security.

"J. L. Dies, Security."

The case was tried before the circuit judge without the intervention of a jury; and the court on request filed a written finding of facts, among which are the following:

That after the above note became due the defendant, R. A. Denton, principal, executed to the bank another note of $779.01, which covered all of the indebtedness of Denton to the bank, including the amount due on the above note in suit, as well as some other notes and some items of money at the time borrowed, and that a mortgage upon certain personalty of Denton was taken to secure the payment of the $779.01 note.

The last note embodied an agreement that the note in suit "shall be held by the bank as collateral security."

That no agreement for delay or extension of time by the note in suit was entered into unless, as a matter of law, the execution of the $779.01 note which matured six months after its date, April 11, 1911, amounted to such agreement.

That the execution of the new and larger note was not accepted by the bank as renewal of the note in suit, nor as payment of same, but it was taken and held as additional evidence of the indebtedness, the same in part as that evidenced by the note in suit.

That the proceeds of the sales under the mortgage, $277, were paid and credited on the $779.01 note.

That the two sureties, Dies and Odom, did not know of the execution of the $779.01 note until some time thereafter, when their principal, Denton, informed them that the old note had been settled by the new note, with other security, to wit, the mortgaged personality.

The circuit judge thereupon rendered judgment against the principal and the sureties for the full amount of the note, and the sureties appealed to the Court of Civil Appeals, which modified the judgment as below indicated.

Petition for certiorari was filed to bring the cause before this court for review.

The grounds urged for reversal are: (1) That the sureties were released from liability on the note in suit by the bank's action in extending the time of payment in taking the larger note; (2) because the note sued on was or should be deemed to be fully paid by the proceeds of the mortgage, $277.

It is clear that, even if the second note is to be deemed a renewal or extension of the first, the appellant sureties cannot successfully claim that they were released from liability by reason of such renewal or extension granted by the bank to their principal, since, first, the note in suit expressly stipulated that the principal might be granted further time after the note was due, from period to period without releasing the sureties.

Second, under our Negotiable Instruments Act (Acts 1899, c. 94, § 120, subsec. 6) a surety on a note is not discharged by the taking of a renewal note of the principal, extending the time of payment, without notice to the surety, where the extension is given under an express reservation of the right of recourse against the surety. And this principle is operative if we can construe the finding of facts to be that the note in suit was retained in possession by the bank, and that the right of action thereon against the sureties was thereby reserved. Meredith v. Dibrell, 127 Tenn. 387, 155 S.W. 163, 46 L. R. A. (N. S.) 92.

In the event first above stated (without discussion of or specific ruling on the second ground above) the sureties were not released; it appearing that the second note was in point of fact not accepted by the bank even as a renewal, but only as an additional evidence of the indebtedness.

A contention of appellant sureties, however, is that the second note amounted to a novation or payment of this note in suit, as a necessary legal deduction or consequence.

The burden of proof to show novation of a note by a later note is upon him who asserts that there has been a novation. Sharp v. Fly, 9 Baxt. 4; Lover v. Bessenger, 9 Baxt. 393; 29 Cyc. 1139.

The rule is established by the weight of authority that where a new note is given to represent the consideration of a former note, and the original is retained, the new note operates only as a suspension of the debt evidenced by the original, and is not a satisfaction of it until paid. Daniel, Neg. Inst. § 1266. This author declares that there would be no cancellation of the older note by the later one if such were not the intention of the parties, and that it should be shown that it was expressly agreed that the old one should be extinguished, in order to have the effect of extinguishment.

The rule has been modified in this state to the extent that a presumption is raised that the old note is extinguished by the later one; but, if this presumption could prevail at all in cases where the old note was retained, it has been held that proof of an express agreement of the parties touching extinguishment or payment or the reverse will control. Bowman v. Rector, 59 S.W. 389, 398.

The intention of the obligor that the existing debt should be discharged by the new obligation must be concurred in by both debtor and creditor; and where the intention is shown, as in the case at bar, to have been to the contrary, it seems clear that neither novation nor payment resulted.

The fact that two evidences of one debt in the two notes outstand at the same time should not confuse the determination of the real rights of the parties. Such practice is not uncommon in business operations; and it is well recognized by the law that one of such evidences of the same debt may be treated as collateral to the other, and the only point of difficulty in the cases has been in relation to a surety on the paper, and as to when an agreement embodied or implied in the later obligation operates to postpone the remedy against the principal, which factor, we have seen, is not a determining one in this litigation.

The cases are numerous that illustrate the rule that two evidences of the same debt may outstand, the one as collateral to the other; and they are partially collated in 7 Cyc. 894, 895, to support the doctrine of the text to the effect that there is no extension of a note, so as to postpone suit or discharge a surety, where another note of the maker is taken merely as such collateral.

In Continental Life Ins. Co. v. Barker, 50 Conn. 567 it appeared that there was a renewal note (not in payment or satisfaction) secured by a mortgage on realty taken from the maker of prior note, on which prior note there was an indorser, who did not agree to the renewal. The court said: "It is expressly found that the...