Lakenan v. North Missouri Trust Co.

• Decision Date: 21 February 1910
• Citation: 126 S.W. 547,147 Mo. App. 48
• Parties: LAKENAN v. NORTH MISSOURI TRUST CO. et al.
• Court: Missouri Court of Appeals

126 S.W. 547

147 Mo. App. 48

LAKENAN v. NORTH MISSOURI TRUST CO. et al.

St. Louis Court of Appeals. Missouri.

February 21, 1910.

Rehearing Denied March 22, 1910.

1. PRINCIPAL AND SURETY (§ 115) — DUTY OF CREDITOR AS TO SURETY.

A creditor must act in good faith and with reasonable diligence to preserve for the benefit of a surety liens held on the principal debtor's property.

2. PRINCIPAL AND SURETY (§ 115) — DISCHARGE OF SURETY.

While a creditor is not bound, in the absence of statute compelling action, to enforce a lien held on the principal's property, without discharging the surety, he may not release means in his hands to discharge the debt, and still hold the surety.

3. APPEAL AND ERROR (§ 1011) — REVIEW — FINDING — CONFLICTING EVIDENCE.

A finding of the trial court on conflicting evidence will not be disturbed on appeal.

4. PRINCIPAL AND SURETY (§ 115) — DISCHARGE OF SURETY — RELEASE OF OTHER SECURITY.

When a creditor who has released a lien on property of the principal seeks nevertheless to hold the surety responsible on the ground that the creditor released in ignorance of the surety's right to look to the lien for indemnity, the surety cannot be held if the creditor was apprised of such minor facts as would have induced a prudent man to inquire about the main fact, and inquiry would have ascertained the truth as to the surety's right to look to such lien for indemnity.

5. PRINCIPAL AND SURETY (§ 117) — DISCHARGE OF SURETY — RELEASE OF OTHER SECURITY.

W. executed a note secured by mortgage on cattle to M., a trust company officer, who transferred the note to his company. Thereafter W. sold the cattle through a commission company, which deposited the proceeds in a bank to the credit and subject to the order of the trust company, in accordance with W.'s instructions, and the same day the commission company notified the trust company of such fact. The trust company drew a draft for the proceeds on another trust company, which was paid by the bank and placed by the latter trust company to the credit of the former, and M. immediately credited W. on the books of his company with the amount, M. at the time knowing that the money was the proceeds of cattle sold by W. It appeared that W. was not a general customer of the trust company, and made no deposits in it except when he borrowed money from it. Held, that such trust company was apprised of facts binding it to inquire of W. whether the money deposited represented the price of the mortgaged cattle, which inquiry would have developed the truth, before paying the money to W., in order to protect a surety on the note.

6. PRINCIPAL AND SURETY (§ 117) — DISCHARGE OF SURETY — RELEASE OF OTHER SECURITY.

Where such trust company failed to make such inquiry and paid over the proceeds to W., the surety was discharged on the note to the amount of such payment.

Appeal from Circuit Court, Audrain County; Jas. D. Barnett, Judge.

Action by J. C. Lakenan against the North Missouri Trust Company and others. From a judgment for defendants, plaintiff appeals. Reversed and remanded.

On July 2, 1904, defendant James H. Wilkins made and delivered to defendant James C. Mundy a promissory note for $3,928, due 90 days after date, drawing interest at the rate of 8 per cent. per annum, and signed by said Wilkins as principal and by plaintiff Lakenan as surety. The latter put the word "security" after his name to show the capacity in which he signed. James C. Mundy, the payee of the note, was at the time an officer of the North Missouri Trust Company. The trust company was the real party in interest in the transaction, and Mundy at once transferred to it the note, which was executed to take up two earlier notes made by Wilkins to said company. One of the earlier notes was for $3,000, and secured like the one in suit by a chattel mortgage on 60 head of cattle belonging to Wilkins. The money obtained on the note for $3,000 was used in the main by Wilkins to buy cattle, and the money obtained on the earlier note for $700 was used to buy feed for the cattle. The note in controversy was secured by a chattel mortgage on 61 head of cattle belonging to Wilkins. This mortgage which was executed simultaneously with the note stipulated that Lakenan should sign the note as security, the cattle should remain on the farm in Audrain county where they were and ready to be exhibited to the mortgagee on demand; they should remain in the possession of Wilkins until default was made in payment of the debt and interest, or some part thereof, but in case of disposal or attempt to dispose of them, or removal of them, or attempt to remove them, from the county, the mortgagee might take possession and sell at public auction to the highest bidder for cash. On August 16, 1904, and six weeks before the note fell due, Wilkins shipped the cattle to the Bowles Live Stock Commission Company at the Union Stockyards in Chicago, to be sold, and accompanied the shipment. They were sold by said commission company, and realized net $3,446.02. Wilkins in writing directed the Bowles Commission Company to deposit this money, less $25 which he drew in cash, to the credit of the North Missouri Trust Company and subject to its order in the National Live Stock Bank of Chicago. Pursuant to Wilkins' order, the commission company deposited the proceeds, less $25, or $3,421.02, in said Chicago bank to the credit of the North Missouri Trust Company, and subject to its order. The direction given by the Bowles Commission Company to the National Live Stock Bank about the disposition of the money was in a writing purporting to be signed by Wilkins by the commission company as his agent, and said there was handed to the bank $3,421.02, to be placed to the credit of the North Missouri Trust Company, of Mexico, Mo., subject to its order. The sale of the cattle in Chicago and the deposit of the proceeds to the trust company's credit happened August 17th, and a letter was sent by the bank to the trust company on said day, notifying the latter of what had happened. This letter is not in the record, nor are its precise contents shown. Mundy, the secretary of the trust company, testified he did not remember whether a letter of advice was received also from the Bowles Commission Company. The following document is in the record without any proof further than appears on its face, that a copy of it was sent to the trust company. It was attached to the deposition of the secretary of the Bowles Commission Company as a memorandum showing the sale of Wilkins' cattle, and as will be perceived at the bottom has the trust company's name and address, as though it was a report made to said company.

                                         Chicago, August 17, 1904
                  Sold for account of J. H. Wilkins
                                               P. O. Mexico, Mo
                No. 1 shipped from Mexico, Mo
                  Purchaser      Cattle      Weight   Price   Amount
                                              60870
                Armour         51 strs      60870   5.20    3165.24
                Ulmer P. C.     9 strs      10450   4.40     459.80
                U. P. C.      1 Dd chute                       5.00
                                      (Copy)                          3630.04
                Car No.       R. R. Weight       Rate
                28081           23500           18.5
                 2238           22300            "
                 3450           24000            "
                      Charges
                Freight, including terminal   135.12
                Yardage                        15.25
                Hay                             3.15         153.52
                Commission                                    30.50    184.02
                                                                      _______
                Net Proceeds                                          3446.02
                              Cash                                      25.00
                                                                      _______
                                                                      3421.02
                  Anything not satisfactory please call for
                explanation
                North Missouri Trust Co.
                    Mexico, Mo.
                

The witness said the document attached to his deposition was a copy of one rendered August 17th, without saying to whom it was rendered. After being advised this money had been put to its credit in the National Live Stock Bank at Chicago, and was subject to its order, the North Missouri Trust Company drew a draft on said bank in favor of the Illinois Trust & Savings Bank, which was the Chicago bank wherein the trust company kept an account. That draft was paid by the National Live Stock Bank at Chicago to the Illinois Trust & Savings Bank, and was placed by the latter to the credit of the North Missouri Trust Company. Mundy testified that on August 18th, and before the trust company was opened for the day's business, he received the letter of the National Live Stock Bank stating the deposit had been made therein to the credit of the trust company by order of Wilkins, and at once gave Wilkins credit on the books of the trust company for the amount, as he understood it was his money. Wilkins left for home on August 17th, on the 18th visited the trust company in Mexico, Mo., and, as he says, asked Mundy if the company had had returns from the cattle, and the latter said returns had been received. Wilkins then told him the money was the proceeds of the cattle on which the trust company held a mortgage; that he would like to borrow enough money from said company to pay off the note of $3,928, which was secured by the mortgage, and leave him about $1,500 over. The effect of Wilkins' testimony is that he asked this loan on the security of a chattel mortgage to be given on stock owned by him; that Mundy and Pollock, another officer of the trust company, talked the matter over and then said, instead of making a new loan, they would mark the note in suit down to $2,000, would credit it with enough of the proceeds of the cattle to reduce it to $2,000, thereby leaving Wilkins the remainder of the proceeds, or about $1,500; also would extend the note as thus reduced. We should state that, according to the terms of the note, an extension could be...