Hederman v. Cox

• Decision Date: 15 January 1940
• Docket Number: 33838
• Citation: 193 So. 19,188 Miss. 21
• Court: Mississippi Supreme Court
• Parties: HEDERMAN v. COX

193 So. 19

188 Miss. 21

HEDERMAN v. COX

No. 33838

Supreme Court of Mississippi

January 15, 1940

Suggestion Of Error Overruled February 26, 1940.

APPEAL from the chancery court of Hinds county HON. V. J. STRICKER Chancellor.

Suit by T. M. Hederman against W. H. Cox, receiver of the Merchant's Bank & Trust Company, for cancellation of a note, wherein the defendant filed a cross-bill on the note. From an adverse decree, the plaintiff appeals. Reversed and decree entered in accordance with opinion.

Reversed, and decree here.

Lotterhos & Travis and Vardaman S. Dunn, all of Jackson, for appellant.

The relationship between appellant and Thomas E. Hand arose in 1927 and was that of surety and accomodated principal.

The course of dealings from 1927 to 1932 shows that the Bank with full knowledge failed to recognize the relationship of principal and surety, to appellant's material prejudice.

The Bank had full knowledge of the true relationship between appellant and Thomas E. Hand.

Had appellant been notified by the Bank he could have protected himself.

The relationship of principal and surety existed between appellant and Thomas E. Hand.

21 R C. L. 946, Sec. 2; Scandinavian-American Bank v Wentworth Lbr. Co. (Ore.), 199 P. 624; O'Connor v. Morse, 112 Cal. 31, 44 P. 305, 53 Am. St. Rep. 155; 21 R. C. L. 947, Sec. 3; Jones on Collateral Securities, Sec. 518; 21 R. C. L. 972, Sec. 25; Gilliam v. McLemore, 141 Miss. 253, 106 So. 99, 43 A. L. R. 79; Meggett v. Baum, 57 Miss. 22; Smith v. Clopton, 48 Miss. 66.

By extending the principal debt of Thomas E. Hand for a definite period, appellant, as accomodation surety, was released from further obligation.

Under the established principles of equity and common law, appellant was released from his obligation.

The extension of time by the creditor in a binding agreement with the principal debtor releases the surety.

Raleigh v. Rotenberry, 174 Miss. 319, 164 So. 5; 21 R. C. L. 975, Sec. 28; Gilliam v. McLemore, 141 Miss. 253, 106 So. 99, 43 A. L. R. 79, 86.

The rights of appellant as surety accrued when the bank acquired knowledge of the relationship in 1932.

4 Williston on Contracts (Rev. Ed. 1936) 3601, Sec. 1258; Smith v. Clopton, 48 Miss. 66; Meggett v. Baum, 57 Miss. 22; Jones on Collateral Securities, Sec. 518; Wigmore on Evidence (2 Ed.), 335, Secs. 2443, 2444; 4 Jones on Evidence (2 Ed.), 2850, 3019; 2 Daniels on Negotiable Instruments (6 Ed.), 1508; 21 R. C. L. 972, Sec. 25.

The acts of the bank, after knowledge of the relation of suretyship, released appellant.

Miss. Code of 1930, Secs. 2775, 2848.

The principles of equity and common law with reference to suretyship defenses are not changed or abrogated by the Negotiable Instruments Law.

Miss. Code, Secs. 2448, 2775, 2848, 2852; Gilliam v. McLemore, 141 Miss. 253, 106 So. 99, 43 A. L. R. 79; Atlantic Life Ins. Co. v. Carter (Tenn.), 57 S.W.2d 449; First National Bank of Gulfport v. Rau, 146 Miss. 520, 112 So. 688; Elkin Henson Grain Co. v. White, 134 Miss. 203, 98 So. 531; Hemingway's Code, Sec. 2085; Miss. Code of 1930, Sec. 1824; 38 Harv. L. Rev. 954; Miss. Law Journal, Vol. VIII, pp. 165, 168; 4 Williston on Contracts (Rev. Ed. 1936), Secs. 1259, 1260; Smith v. Clopton, 48 Miss, 66; Meggett v. Baum, 57 Miss. 22.

The act of repledging appellant's note to secure a consolidated indebtedness of the principal debtor, made after appellant's note was past due, released appellant from his obligation.

Rylee v. Wilkinson, 134 Miss. 663, 99 So. 901.

The case at bar may be distinguished from authorities holding to the view that suretyship defenses are abrogated by the negotiable instruments law. Suretyship defenses prevail where the surety appears as maker on a collateral note, as distinguished from the case where he appears as joint maker on the note executed by the principal debtor to evidence the principal debt.

Merchants Nat. Bank v. Smith (Mont.), 196 P. 523, 15 A. L. R. 430; Miss. Code, Secs. 2685, 2775; First Nat. Bank of Missoula v. Holding (Mont.), 4 P.2d 709; Tenn. Hermitage Nat. Bank v. Hagan (Ala.), 119 So. 4; Howell v. War Finance Corp. (C. C. A., 9th Cir. 1934), 71 F.2d 237; Hoffman v. Habighorst (Ore.), 63 P. 610; Union Mutual Life Ins. Co. v. Hanford, 143 U.S. 118, 36 L.Ed. 118; Gilliam v. McLemore, 141 Miss. 253, 106 So. 99, 43 A. L. R. 79.

The extension of time by the bank delayed appellant in the enforcement of his rights of subrogation and indemnity from the principal debtor, and he is therefore released by such extension.

21 R. C. L. 1018, Sec. 66; Jones on Collateral Securities, Sec. 518b; Slagle v. Pow, 41 Ohio St. Rep. 603; Hoffman v. Habighorst (Ore.), 63 P. 610, 89 P. 952, 91 P. 21; Union Mutual Life Ins. Co. v. Hanford, 143 U.S. 118, 36 L.Ed. 118; Gilliam v. McLemore, 141 Miss. 253.

The question raised is whether or not appellant's act in making the collections in 1935 and 1936 amounts to a bar of his defense in the case at bar on the principles of suretyship. As put by the court in its request for additional briefs: Does this act "bar appellant from the contention that the cross note of Hand to him was no more than a memorandum?"

It has been difficult to place the question under discussion into any clear-cut legal category. Obviously the act of appellant could not be classed as an equitable estoppel, for the reason that the evidence fails to show that the bank relied upon the act or in any manner changed its position because of it.

Davis v. Butler, 128 Miss. 847, 91 So. 279.

The issue therefore must be whether appellant's act was so inconsistent with his present position as to amount to an abandonment of his defense or, more correctly stated, whether the act of appellant was so inconsistent that it is sufficient as a matter of law to nullify the undisputed testimony to the effect that appellant executed his note to Hand purely for Hand's accommodation, and that this was the sole purpose and object of the transaction.

Appellant's testimony as to the relationship created and existing between him and Thomas E. Hand is undisputed. He testified that the transaction was entered into purely as a matter of accommodation to Hand, and that appellant never owed Mr. Hand anything on the notes executed to him. The accommodation of Mr. Hand was the sole purpose of the transaction.

Regardless of what might be the effect of appellant's act in question, standing alone, when this act is viewed in connection with the facts and surrounding circumstances as they existed at the time the collections were made, we respectfully submit that the collections were not inconsistent with the fact that the note of Thomas E. Hand to appellant was a mere memorandum or security for the suretyship relation.

Farley Nat. Bank v. Henderson, 24 So. 428; 50 C. J. 244, Sec. 396; Graham v. Thorton, 9 So. 292; Fidelity & Deposit Co. of Md. v. Deposit Guaranty Bank & Tr. Co., 164 Miss. 286, 144 So. 700; McLean v. Love, 172 Miss. 168, 157 So. 361; 27 R. C. L. 908, Sec. 5.

In answer to the question whether or not appellant owed Hand anything on his note, Hederman testified that, "I didn't owe him a dime. " Hand's obligation was first to the bank, and secondly to protect appellant as a surety by paying the principal debt at the bank in exoneration of appellant on his note. On the other hand, appellant held only the legal or equitable right as against Hand to insist upon exoneration from any obligation to the bank by virtue of his note being held as collateral security.

That the form of the transaction is immaterial and that parol evidence is always admissible to show the relationship of surety and notice thereof to the creditor is firmly established in this state in the case of Smith v. Clopton, 48 Miss. 66 and in the case of Meggett v. Baum, 57 Miss. 22.

Jones on Collateral Securities, Sec. 518; 21 R. C. L., page 947, Sec. 3 and page 972, Sec. 25; 4 Williston on Contracts (1936 Ed.), 3601, Sec. 1258; 5 Wigmore on Evidence (2 Ed.), 335, Secs. 2443, 2444; 4 Jones on Evidence (2 Ed.), 2850, 3019; 2 Daniels on Negotiable Instruments (6 Ed.), 1508.

It is established in this state that for most purposes a surety is deemed a creditor of his principal from the instant the surety obligation is assumed. Loughridge & Bogan v. Bowland, 52 Miss. 546; Washburn v. Blundel, 75 Miss. 266, 22 So. 946.

6 Am. Jur., 581, Sec. 119; Williams v. U.S. F. & G. Co., 236 U.S. 549, 59 L.Ed. 713, 34 Am. Bankruptcy Rep. 181; 2 Remington on Bankruptcy, Sec. 778; U.S. F. & G. Co. v. Ryan, 124 Wash. 329, 214 P. 433, 39 A. L. R. 109, 1 Am. Bankruptcy Rep. (N. S.) 418.

W. S. Henley, of Hazlehurst, for appellee.

The mutual exchange of notes was supported by a valuable consideration.

Tumunsky et al. v. Woodruff et al. (Cal.), 57 P.2d 1372; Ramish, Inc., v. Woodruff, 2 Cal. (2d) 190, 206, 40 P.2d 509, 96 A. L. R. 1146; Ambrose v. Hammond Lbr Co., 43 Cal. Appl. 597, 185 P. 691; In re Sonnershein's Estate, 257 N.Y.S. 850; Brennan v. Schad, 145 S.E. 647; McCary v. Traction Co., 97 W.Va. 306, 125 S.E. 92; 1 Daniel, Negotiable Instruments, 187; Security Nat. Bank of Tupelo v. Bohnefeld, 267 P. 631; Dowe v. Schutt, 2 Denio (N. Y.) 621, 623; 2 Am. Eng. Enc. Law, 363; Eaton v. Carey, 10 Pickering 210; Selover on Negotiable Instruments, page 96; 1 Randolph on Commercial Paper, page 777, Sec. 479; 1 Joyce on Defenses to Commercial Paper, page 494; Tiedeman on Commercial Paper, page 286; Farley Nat. Bank v. Henderson, 118 Ala. 441, 24 So. 428; Farber v. Nat. Forge & Iron Co., 140 Ind. 54, 39 N.E. 249; Iowa College v. Hill, 12 Iowa 462; Crescent City Bank v. Hernandez, 25 La. Ann. 43; American Nat. Bank v. Patterson, 83 So. 218; Dockray v. Dunn, 37 Me. 442; Williams v. Banks, 11 Md. 198; Stickney v. Mohler, 19 Md. 490; Higginson v....