Indiana Telco Federal Credit Union v. Young

• Citation: 297 N.E.2d 434,156 Ind.App. 483
• Decision Date: 25 June 1973
• Docket Number: No. 1--1072A84,1--1072A84
• Parties: INDIANA TELCO FEDERAL CREDIT UNION, Plaintiff-Appellant, v. Robert L. YOUNG, Defendant-Appellee.
• Court: Court of Appeals of Indiana

Page 434

297 N.E.2d 434

156 Ind.App. 483

INDIANA TELCO FEDERAL CREDIT UNION, Plaintiff-Appellant, v. Robert L. YOUNG, Defendant-Appellee.

No. 1--1072A84.

Court of Appeals of Indiana, First District.

June 25, 1973.

Lawrence H. Hinds, Frederick J. Graf, Martz, Beattey, Hinds & Wallace, Indianapolis, for plaintiff-appellant.

Ronald C. Smith, Smith & Mills, Indianapolis, for defendant-appellee.

LYBROOK, Judge.

Appellant (Telco) brought this action against Young, a surety, upon a promissory note executed to Telco by Richard Milton.

The evidence most favorable to the appellee shows that on January 27, 1969, the note was executed in the sum of $3,255.00. Milton pledged $700.00 of his savings account with Telco as collateral on the loan. Repayment was to be made by semi-monthly payroll deductions of $75.00 each. Milton's wife as well as Young, co-signed the note. Young and the Miltons were all employees of Indiana Bell and members of Telco.

Milton left his employment on May 23, 1969, and Telco received the last payroll deduction on June 4, 1969. Later that month Young contacted Telco about the loan and was told 'that the account was current and no problems.' It was not until December 12, 1969, that Young was informed 'that due to an IBM mixup they found that Mr. Milton's account hadn't been being paid and that it was delinquent and that he was going to have some makeup payments to make . . .' During this period, Telco had made withdrawals from Milton's savings account to make the loan payments as they came due. During the same period Telco allowed Mrs. Milton to make withdrawals from her own small savings account.

After Milton's account was virtually exhausted, Telco made withdrawals in the amount of $671.81 from Young's account, without his knowledge or authorization, and applied them as payments on the note. Telco's bylaws authorized it to freeze Young's account but did not authorize withdrawals therefrom. Young did not discover these withdrawals until he attempted to make a withdrawal and found he had a very small balance left.

Young testified that pressure was put on him by Indiana Bell executives to pay the remaining balance due on the note.

The evidence also showed that Telco had contacted Milton in Texas, demanding payment of the entire balance due. Milton offered to pay $138.00 per month and Telco accepted and sent him a payment book with $138.00 scheduled monthly payments. Milton later made five payments on the loan, reducing the balance to $1406.12. He then declared bankruptcy.

Upon this evidence, the trial court found:

'. . . that the principal was in default on payments on note in question in June, 1969, when he quit making payments thereon; that the plaintiff's release of funds to co-surety, Glenda R. Milton, and the use of principal's pledge to make payments on note, constituted a waiver of liability as to surety Robert L. Young; and that plaintiff recover nothing on its cause of action herein as against defendant Robert L. Young.'

There are several conflicting characterizations of the issues by the parties, even within a given brief. However, we will discuss only those issues which were presented by the Motion to Correct Errors and also argued in appellant's brief, the remainder having been waived pursuant to A.R. 8.3.

The threshold issue is whether the trial court correctly found that the note was in default in June when Milton stopped making payments, rather than in December when the collateral was exhausted.

It has long been the law in Indiana that a surety is a favorite of the law and that he must be dealt with in the utmost good faith. State ex rel. Hughes v. Adams (1918), 187 Ind. 165, 118 N.E. 680. It is also well established that a creditor's failure to notify a surety of a debtor's misconduct discharges the surety. Indiana & Ohio Live Stock Ins. Co. v. Bender (1904), 32 Ind.App. 287, 69 N.E. 691.

In the case at bar, it is obvious that while Telco was making the required payments for Milton from his pledged savings account, Milton was not making the payments.

Telco contends it had no knowledge that Milton was not making the payments since the list of payroll deductions from Bell did not specifically state that payroll deductions had ceased. This argument is without merit. The very fact that no payroll deduction for Milton appeared on the...