Hoerner v. First Nat. Bank of Jackson

• Decision Date: 06 December 1971
• Docket Number: No. 46366,46366
• Citation: 254 So.2d 754
• Parties: Fred A. HOERNER, Complainant-Appellant, v. FIRST NATIONAL BANK OF JACKSON, Mississippi, Defendant-Appellee.
• Court: Mississippi Supreme Court

Page 754

254 So.2d 754

Fred A. HOERNER, Complainant-Appellant, v. FIRST NATIONAL BANK OF JACKSON, Mississippi, Defendant-Appellee.

No. 46366.

Supreme Court of Mississippi.

Dec. 6, 1971.

Rehearing Denied Jan. 10, 1972.

Daniel Coker, Horton, Bell & Dukes, John B. Clark, Jackson, for complainant-appellant.

Watkins & Eager, William F. Goodman, Jr., Jackson, for defendant-appellee.

PATTERSON, Justice:

This appeal arises from the Chancery Court of the First Judicial District of Hinds County. It involves the liability of Fred A. Hoerner upon a continuing guaranty agreement to the First National Bank of Jackson and the subjugation of mining stock pledged by him as security for payment of a corporate loan.

In 1957 Fred A. Hoerner (hereinafter Hoerner), a businessman of Jackson, became the owner of 50% of the stock in Shinault Lumber Products, Inc. (hereinafter Lumber Products) of Olive Branch, Mississipp. The owner of the remaining corporate stock was Spain Shinault. The corporation's primary business in its early stages was the wholesale brokerage of lumber products, the details of the business being managed by Spain Shinault.

The corporation orginally had a line of credit with a bank in Memphis. Thereafter, in 1958 Lumber Products began doing business with the First National Bank of Jackson (hereinafter First National). The financial arrangement between Lumber Products and First National was that the latter extended a line of credit to Lumber Products whereby it could assign invoices of its customers to the bank and borrow upon them. In practice First National notified the customers of Lumber Products of the assignment of the invoices to it in order to prevent direct payments to Lumber Products. On August 18, 1959, Hoerner, being dissatisfied with this practice, requested that it be discontinued since it was his opinion that notification of Lumber Products' customers conveyed the thought of corporate financial instability to its detriment. In his letter to First National requesting that the practice of notification be discontinued, Hoerner reminded the bank of his personal guaranty for its security. First National approved the requested modification by its letter of August 15, 1959, indicating that it would continue to rely upon Hoerner's existing guaranty of $100,000 executed in November 1958.

On November 3, 1959, Hoerner signed a continuing guaranty, now in dispute, to First National to secure 'any and all credit extended to the Shinault Lumber Products, Inc. to the extent of $100,000.' This guaranty was upon a printed form supplied by First National. However, there was typed into it a provision requested by Hoerner that 'all loans made after this date shall be approved by the undersigned.'

Thereafter, a series of loans was made by First National on wholesale invoices received by it from Lumber Products without notification that the invoices had been consigned to the bank for loans and also, according to Hoerner, though disputed by other witnesses, without notice to him for approval as specified in the guaranty of November 3, 1959. Employee witnesses of First National testified that on each loan they telephoned Hoerner and he approved each of the loans. This was disputed by Hoerner. No written evidence is available to indicate prior approval by Hoerner to the extension of credit by First National.

In 1966 Lumber Products ventured into the lumber manufacturing business, though continuing its brokerage activities, and sought financing from First National for the contruction of a manufacturing plant to be located at Olive Branch, Mississippi. First National agreed to interim construction financing of the plant, but required a continuing guaranty of $60,000 to be executed by Hoerner and And Spain Shinault. This guaranty was returned to Hoerner in 1969 after permanent financing was arranged between the parties and is not involved in this litigation.

In October 1967, Lumber Products negotiated permanent financing for the construction of its plant with First National. It executed a term note for $100,000 to the bank and secured it by a deed of trust upon the plant site in DeSoto County and by a pledge of securities from Hoerner and Spain Shinault. Hoerner's letter of October 2, 1967, to First National relating to the pledge of securities is in part as follows:

In accordance with our conversation the other day I am pleased to enclose herein municiple (sic) bonds in the sum of $25,000 as security on $20,000 portion of a loan to Shinault Lumber Products, Inc. at Olive Branch, Miss.

It is undestood that as Shinault's loan is reduced, a proportionate amount of above securities will be returned in proportion to the amount of reduction of the loan.

Thereafter, on October 19, 1967, Hoerner executed a borrowed collateral certificate assigning his interest in the bonds therein enumerated to Lumber Products to be used as security by it for the loan, the consideration for the certificate being a loan to be made by First National to Lumber Products. This certificate contained a 'catch all' provision which stated the securities were pledged 'for any and all other indebtednesses of said borrower to you,' the borrower being designated in the certificate as Lumber Products. On this same date Lumber Products executed a term note to First National in the sum of $100,000 upon which there was listed as security the identical bonds enumerated in the borrowed collateral certificate. This note contains, among other things, the following language:

. . . The holder of this note shall also have a lien on all of the above mentioned collateral for any other debt due or to become due by the maker or makers hereof to such holder.'

Thereafter, Hoerner became displeased with the manner in which the assigned stock was being managed by First National. He requested the bank to exchange the pledged bonds for 200 shares of Minnesota Mining & Manufacturing Company stock. First National approved the exchange of security and on November 23, 1968, returned the bonds and borrowed collateral certificate to Hoerner ¹ and accepted the Minnesota Mining & Manufacturing Company stock in place of the bonds.

The loans made by First National to Lumber Products from 1958 until May 1969 on the invoices were numerous and substantial. The minutes of the corporation which were compiled by Hoerner as secretary of the board of directors, the board being composed of Spain Shinault and himself, reflected the following activities by the board at its annual meetings from 1965 through 1969:

The meeting then proceeded to a consideration of the results of the corporation's operations during the preceding year, in the course of which such operations were examined in detail and consideration was given to all transactions of the corporation during such period. . . .

These minutes and other evidence also reflect that Hoerner received cash bonuses on various occasions from the business.

In May 1969 Lumber Products filed a petition in bankruptcy and subsequently the deed of trust was foreclosed, resulting in a sale for $95,000. This left a balance of $3,000 from the sale which is now held by First National to credit against other indebtednesses of Lumber Products under the provisions of the deed of trust.

Lumber Products remains liable to First National upon unpaid promissory notes for $82,206.48, with unpaid interest thereon of $5,449.46. Hoerner, being pressed for payment under the terms of his continuing guaranty and faced with forfeiture of the pledged Minnesota Mining stock toward payment, filed his bill of complaint to rescind the continuing guaranty and prayed that the pledged stock be returned to him. He contends that the guaranty of November 3, 1959, is not enforceable against him since he did not approve the loans as required by the 'typed' portion of the guaranty and that First National has obtained full payment and satisfaction of the debt for which the shares of stock were pledged.

First National seeks judgment against Hoerner for $82,206.48, plus interest of $5,449.46, upon twenty-five promissory notes of Lumber Products remaining unpaid. By way of answer and cross bill it also seeks enforcement of the personal guaranty of Hoerner as well as the subjugation of the pledged stock toward liquidation of the indebtedness of Lumber Products. It contends that Hoerner by his actions waived the right to approve the loans made on the invoices under the continuing guaranty and that the mining stock is subject to the payment of Lumber Products' indebtednesses.

The lower court found Lumber Products to be indebted to First National in the amount said for. It thereupon held the stock to be subject to the indebtedness of Lumber Products, but adjudged that Hoerner was not liable to the bank under his continuing guaranty agreement. From this decree Hoerner prosecutes a direct appeal, contending that the court erred in subjecting the stock to the indebtedness, and First National cross appeals, asserting that the court erred in relieving Hoerner of liability under his continuing guaranty.

I.

We are of the opinion the lower court correctly concluded that the stock of Hoerner was security for the indebtednesses of Lumber Products. The record reveals quite clearly, we think, his intent to assign the bonds to Lumber Products for its use as collateral security for a loan from First National. While true that Hoerner's letter of October 2, 1967, sought to restrict the security to only a portion ($20,000) of the loan, nevertheless, the pledge was later expanded by the terms of the collateral security certificate to include '. . . for any and all other indebtednesses of the same borrower to you.' The note of the borrower executed the same day and listing the same securities contains similar language with pledges the collateral to any and all other debts of the borrower. Hoerner argues, however, that his letter of October 2 should be considered with the collateral security...