First American Nat. Bank of Iuka v. Alcorn, Inc.

• Decision Date: 12 July 1978
• Docket Number: No. 50162,50162
• Citation: 361 So.2d 481
• Parties: 24 UCC Rep.Serv. 1240 FIRST AMERICAN NATIONAL BANK OF IUKA, Mississippi v. ALCORN, INC., et al.
• Court: Mississippi Supreme Court

Page 481

361 So.2d 481

24 UCC Rep.Serv. 1240

FIRST AMERICAN NATIONAL BANK OF IUKA, Mississippi v. ALCORN, INC., et al.

No. 50162.

Supreme Court of Mississippi.

July 12, 1978.

Rehearing Denied Aug. 9, 1978.

Wynn & Bogen, Douglas C. Wynn, Greenville, for appellant.

Price & Krohn, James E. Price, Sharp & Fisher, Jimmy B. Fisher, Smith, Downs, Ross, Trapp & Coleman, Donald Ray Downs, Corinth, Mitchell, McNutt, Bush, Lagrone & Sams, Guy Mitchell, Jr., Tupelo, for appellees.

Before PATTERSON, BROOM and BOWLING, JJ.

PATTERSON, Chief Justice, for the Court:

This is a complex case in which First American National Bank of Iuka, Mississippi, appeals from a decree of the Chancery Court of Alcorn County, naming as appellees Alcorn, Inc., Holiday Inns, Inc. (hereinafter Holiday), Westinghouse Credit Corporation (hereinafter Westinghouse), Sam Spain, Dr. James P. McLemore, Jr., and Homer C. Freeman. Alcorn, Inc., Spain and Freeman cross appeal.

Spain and McLemore, residents of Jackson, Tennessee, and Freeman of Alcorn County, Mississippi (hereinafter referred to as the Alcorn Group), entered a business venture to construct a Ramada Inn in Corinth, Mississippi. They organized a Mississippi corporation, Alcorn, Inc., to own and operate the inn. Alcorn, Inc., entered an agreement with Westinghouse for $775,000 to build the motel. This was a five-year short term construction financing contract in which Westinghouse acquired a first deed of trust of February 15, 1973, from this corporation on the motel site as well as a security interest in any after-acquired property.

In 1972 Spain on behalf of Alcorn, Inc., approached the bank for a $75,000 loan which was denied because it exceeded the bank's loan limits and was insufficiently secured. In April 1973, Clint Reed, a former resident of Jackson, Tennessee, employed by the bank in December, 1972, as vice-president and manager of the Corinth branch, loaned Spain, Freeman and McLemore $75,000 which was secured by a deed of trust on .33 acre of land adjacent to the construction site of Ramada Inn. At the time Vice-President Reed had authority to authorize secured loans not in excess of $25,000 and the bank's loan limit was $72,684. In May, 1973, the bank, pursuant to Reed's authorization, loaned Spain $25,000 secured only by a $12,500 certificate of deposit. The aggregate of these two loans, $100,000, was used to purchase certificates of deposit which were pledged to secure Westinghouse in its construction loan.

In December, 1973, Alcorn, Inc., entered into an agreement with Inn Keepers Supply Company, a division of Holiday, for the purchase of furniture, furnishings and equipment for the motel at a cost of $97,635.69. A deposit of $1,000 was paid, leaving a balance of $24,158.93 due before the date of shipment, and it was agreed that a commitment letter would be obtained from the bank for the remaining $72,476.76. Although Spain had been negotiating with the bank for another loan, apparently unsuccessfully, to pay for the furniture and furnishings, nevertheless, without prior bank approval, Reed wrote a letter to Holiday on January 3, 1974, signed by one of his subordinates, B. E. Tidwell, Vice-president of the Corinth branch, in which the bank agreed to pay $72,476.76 after the purchaser had approved the invoice and presented it to the bank for payment.

In the spring of 1974, McLemore and Spain purchased certificates of deposit to secure the proposed loan of $90,000 ostensibly to cover the purchase of furniture and equipment with overruns. According to Spain, Reed had agreed the loan would be made so that the letter of credit could be paid. Spain also testified that he had several conferences with Tidwell regarding the proposed loan in May or June of 1974.

The notes of Spain, Freeman and McLemore for $100,000 were not paid when they became due in 1974. In June after Reed left the bank's employment, Spain's note was renewed and the Alcorn Group's $75,000 note was divided into two separate notes, bringing it within loan limits as well as permitting a finance charge. A note for $25,603.50 was executed by McLemore, Spain and Freeman and a note for $52,270 was executed by Alcorn, Inc., being signed by the same individuals in their corporate capacities.

For these loans the bank required greater security and Spain, McLemore and Freeman conveyed the .33 acre, security for the original loan of $75,000, to Alcorn, Inc., which in turn executed a deed of trust on it to secure the $52,270 loan. As additional security the Alcorn Group, together with Mary H. McLemore, wife of Dr. McLemore, and Inez H. Freeman, wife of Homer Freeman, executed an unlimited guaranty agreement wherein each jointly and severally guaranteed all previous indebtednesses to the bank.

The bank did not learn of the letter of credit to Holiday until June 1974 nor receive a copy of it until July 12, 1974, when it refused to acknowledge any obligation under it. After the bank refused to pay Holiday, Claude L. Stiner, contract collection manager for Holiday, agreed to a ninety-day extension of the indebtedness with Alcorn, Inc., for it to secure finances to pay for the merchandise. Holiday agreed on the condition that (1) the bank agree to the extension and furnish Holiday a supplemental letter to that effect, (2) that the members of the Alcorn Group individually execute a promissory note for the full amount due, including overages and interest, and (3) that Alcorn, Inc., give Holiday a security interest in the merchandise. Although the bank agreed to grant such letter, it never did so. However, the Alcorn Group, in their corporate and personal capacities, executed a promissory note to Holiday in the principal amount of $83,970.25. Additionally, Alcorn, Inc., executed a conditional sales contract and Spain executed a financing statement.

Dr. Kelly S. Segars, President of the bank, testified that he had no knowledge of the letter of credit or the $90,000 loan commitment until after Reed departed the bank in May or June of 1974, nor were either discussed at any bank board meetings through June, 1974. J. R. Long, Chairman of the Board and Executive Vice-President of the bank, testified he was not aware of the letter of credit until after July 12, 1974, and that the $90,000 loan commitment was not approved by the directors or the loan committee, and moreover, was never discussed with him by Reed.

Holiday completed its delivery of furniture and furnishings and presented its invoice of $80,354.31, then due, representing the amount of the bank's letter, the overages resulting from change orders and credit for merchandise which had been returned. The invoice was approved by Spain for Alcorn, Inc., and payment was requested of the bank in accord with its letter of January 3, 1974, but payment was refused. In December, 1974, Holiday sued the bank, Spain, McLemore and Freeman in the Circuit Court of Alcorn County to collect under the letter. The suit was transferred to the Chancery Court of Alcorn County and consolidated with another suit between the bank, Alcorn, Inc., Spain, the Freemans, the McLemores, and Westinghouse. Ultimately, the bank became the complainant and the remaining parties became the defendants.

The bank's bill of complaint was against Alcorn, Inc., Spain, the McLemores and the Freemans to recover on the notes and for damages resulting from an alleged conspiracy with Reed; against Holiday to declare the letter of credit unenforceable and in the alternative, if judgment was adverse to the bank, to stay execution until Holiday had made resort to the securities of Alcorn, Inc., Spain, McLemore and Freeman under the doctrine of "marshaling of assets"; and, in the further alternative, against Alcorn, Inc., and Westinghouse on the theory that if it must pay Holiday, then the bank should have a judgment against Alcorn, Inc., with a lien upon the furniture and furnishings with priority over Westinghouse.

Holiday filed a cross bill against the bank for the amount of the letter of credit and against Alcorn, Inc., Spain, McLemore and Freeman to recover the sum of $83,970.25, the amount of the note executed by them on July 5, 1974, plus interest. Alcorn, Inc., filed a cross bill against the bank for breach of contract in failing to honor its loan agreement and failure to pay Holiday pursuant to the letter of credit as well as for damages for libel and slander. The Freemans and Spain filed separate cross bills against the bank for its alleged failure to honor its loan commitment and for damages for libel and slander.

After a vacation hearing, the chancellor dismissed the McLemores for lack of jurisdiction and the cause proceeded to trial with no judgment being taken against Inez H. Freeman. The chancellor's decree otherwise held:

1. Westinghouse had a first, prior and paramount lien on the real property, furniture, fixtures, equipment and other personal property described in its security instrument.

2. Holiday was permitted to recover $72,476.76 from the bank under the letter of credit, plus interest from March 13, 1974.

3. The bank was permitted recovery as follows:

(a) From Alcorn, Inc., $72,476.76, the amount of the letter of credit, plus interest from March 13, 1974.

(b) From Spain, $15,526.37, plus interest, the amount due on the May 3, 1973, note in the original amount of $25,000.

(c) From Alcorn, Inc., Spain and Freeman, jointly and severally, $67,721.16, plus interest, the amount due on the Alcorn, Inc., note of June 24, 1974, in the original principal of $52,270.

(d) From Spain and Freeman, jointly and severally, $32,398.88, plus interest, the amount due on the note of Spain, Freeman and McLemore executed on June 24, 1974, in the original sum of $25,603.50.

4. Holiday was granted recovery against Alcorn, Inc., Spain and Freeman, jointly and severally, for $83,970.25, plus interest on the promissory note of July 5, 1974, with any amount paid to Holiday by the bank in satisfaction of the judgment...