Johnson v. Franklin Bank

• Decision Date: 18 March 1903
• Parties: JOHNSON v. FRANKLIN BANK et al.
• Court: Missouri Supreme Court

73 S.W. 191

173 Mo. 171

JOHNSON v. FRANKLIN BANK et al.

Supreme Court of Missouri, Division No. 1.

March 18, 1903.

SURETY—EXTENSION OF TIME TO PRINCIPAL —EXECUTION OF NEW NOTES—TIME OF MATURITY—DELIVERY OF OVERDUE NOTE—AFFIRMANCE ON APPEAL.

1. A wife's separate property, incumbered to secure the husband's note, due in one year, is not discharged by the husband's executing notes to the same payee for the same debt, due before the expiration of the year, and pledging the secured note therefor; the effect of the transaction not being to extend time to the husband.

2. A note overdue by its terms when delivered is operative, not as an overdue note, but as one payable on demand; and hence the substitution of such a note for one overdue, to secure which the maker's wife has incumbered her separate property, is an extension of time to the husband which will release the security.

3. A right judgment in equity will be affirmed, though based on reasoning different from that justifying it to the Supreme Court.

Appeal from St. Louis Circuit Court; D. D. Fisher, Judge.

Bill by Mary P. Johnson against the Franklin Bank and others. Judgment for plaintiff, and defendants appeal. Affirmed.

This is a bill in equity to cancel a deed of trust dated March 10, 1896, covering lot 13 of block 25 of Gamble's Second subdivision of Rose Hill, in city block 3825, city of St. Louis (the same being the plaintiff's separate property), securing a note of the same date for $5,000, made by her husband, payable at one year, to the order of J. L. Hauk, who was a clerk for the defendant bank, and acting for it in the transaction, and to enjoin the sale, assignment, or pledge of said note and deed of trust, and the foreclosure of the deed of trust. The gravamen of the plaintiff's case is that her separate property was surety for the payment of her husband's note, and that she and her property have become released and discharged by reason of the bank giving time to the husband to pay the debt. There is no controversy in the case as to the facts. The only differences are as to the legal effect of the acts of the parties. The case made is this: The plaintiff's husband, Moses P. Johnson, desired to borrow $5,000 from the bank. He executed a note for that amount, payable at one year to the order of J. L. Hauk, who had no interest in the matter, and simply acted for the bank. To secure that note the plaintiff executed the deed of trust in question. The only thing that was asked her by the officers of the bank, when she went there to execute the deed of trust, was whether she was willing to give the deed of trust to secure her husband's said note, to which she replied in the affirmative, and thereupon executed the deed of trust, and left the bank. This was on March 10, 1896, and it is conceded that she had no knowledge or information about what was done by her husband and the bank thereafter until June or July, 1900. Instead of simply discounting the note that was secured by the deed of trust, the bank caused the husband to make his note for $5,000, payable at 90 days, to the bank, and to pledge the note and deed of trust aforesaid as collateral security for the 90-day note. The bank says this was a mere matter of form and convenience, and so as to enable the husband to pay the debt before the maturity of his note secured by the deed of trust, and that the note secured by the deed of trust was the primary liability of the husband, and that the taking of the 90-day note, and pledging the note and deed of trust aforesaid as collateral therefor, did not have the effect of giving time to the principal, nor of releasing the surety, for that there was no extension of time. On the other hand, the plaintiff claims that the 90-day note was the primary obligation of the husband; that the money was loaned upon that note, and the note and deed of trust aforesaid were only pledged as collateral security; and that the debt therefore matured in 90 days. At the maturity of the 90-day note, on June 11, 1896, a new note for 90 days was given, and the note and deed of trust aforesaid were again pledged as collateral security therefor, and the first 90-day note was marked "Paid" and surrendered. Upon the maturity of the second 90-day note, on September 11th, another 90-day note was given, and the same arrangement pledging the note and deed of trust aforesaid was made. On September 15th the same arrangement was made, except that the new note was payable at 30 days. On October 15 and December 17, 1896, the same arrangement was made, except the note was made payable at 60 days. On February 25, 1897, the husband paid $600 on the note, and a new note was made to the bank for $4,400, payable 1 day after date, and maturing March 1, 1897, and the note and deed of trust aforesaid were pledged as collateral security. At all said times the husband paid the interest then accrued on the loan. Thus the matter stood until February 8, 1899, when the husband gave the bank a new note for $4,400, dated February 1, 1899, and payable 1 day after date, and pledged the note and deed of trust aforesaid as collateral security therefor, and the bank surrendered to him the note dated February 25, 1897. The husband at that time paid the interest up to February 1, 1899, and thereafter he paid the interest on the last note aforesaid until October 10, 1900, when he failed. In the meantime, however, the bank obtained from him an agreement that it should have a right to hold any collateral pledged to it for the payment of any indebtedness due by him to the bank.

In June or July, 1900, Mrs. Johnson, desiring to make a loan at a lesser rate of interest, went to the bank to learn the status of the note for which she had given the deed of trust as security, and was informed that the bank held the note and deed of trust as collateral security for whatever sum her husband owed the bank—whether it arose out of the original transaction of March 10, 1896, or not. On November 26, 1900, the bank addressed the following notice to the plaintiff: "Mrs. Mary Johnson, 5863 Plymouth Ave., City—Madam: Please take notice that we will, in conformity with the collateral agreement of Mr. Moses P. Johnson to his note we hold, proceed to sell on Wednesday, the 28th day of this month, at ten o'clock a. m., at our office, the $5,000 note (balance due $4,400 and interest from October 1, 1900) made by you and secured by D. T. to the highest bidder for cash, and in case we have to purchase the note ourselves, we will then proceed immediately to have the trustee in said D. T. advertise and sell the property under said D. T. Very respectfully, Franklin Bank, Louis Schmidt, Cashier." Thereupon Mrs. Johnson instituted this suit.

The position taken by the plaintiff, both here and in the lower court, is "that the original ninety-day note was the primary obligation of Johnson to the bank; that Mrs. Johnson's real estate stood as surety for the payment of that note, and was discharged by the extension of the time of payment of said note without her knowledge or consent." This position concedes that the husband had the power to pledge the original note secured by the deed of trust...