National Bank of Eastern Ark. v. Collins

• Decision Date: 03 June 1963
• Docket Number: No. 5-2994,5-2994
• Citation: 370 S.W.2d 91,236 Ark. 822
• Parties: NATIONAL BANK OF EASTERN ARKANSAS, Appellant, v. Herbert COLLINS, Trustee, et al., Appellees.
• Court: Arkansas Supreme Court

Page 91

370 S.W.2d 91

236 Ark. 822

NATIONAL BANK OF EASTERN ARKANSAS, Appellant, v. Herbert COLLINS, Trustee, et al., Appellees.

No. 5-2994.

Supreme Court of Arkansas.

June 3, 1963.

E. J. Butler, Forrest City, for appellant.

Brockman & Brockman, Levine & Williams, Pine Bluff, for appellees.

HOLT, Justice.

The appellees brought this action as a foreclosure suit and, also, to have adjudicated the terms of their Guaranty Agreement. On September 1, 1960, the appellees, Herbert Collins, Trustee, Paul M. Leird, C. Hamilton Moses, John Collins and John Collins, Executor of the Estate of H. G. Galloway, deceased, hereinafter referred to as Guarantors, filed a foreclosure suit on two Deeds of Trust executed by W. D. May and Dorothy E. May, his wife, hereinafter referred to as May. These Deeds of Trust secured two notes by May and any sums for which the Guarantors might become liable on their Guaranty of May's note of $29,662.36 to the National Bank of Eastern Arkansas, hereinafter referred to as Bank. The Guarantors made the Bank a party defendant and asked the Court to determine their liability as Guarantors, if any, to the Bank under the terms of the Guaranty Agreement. The Bank filed an answer and cross complaint seeking judgment against the Guarantors, jointly and severally, for $2,265.52 as a deficiency owed it under the terms of the Guaranty Agreement. May filed an answer admitting an original indebtedness of $29,662.36 to the Bank and alleged that said indebtedness was fully paid and satisfied of record June 29, 1960. May denied any indebtedness to Guarantors and in a cross complaint claimed damages for alleged collusion between the Guarantors and the Bank.

Upon a trial of these issues the Chancellor entered a decree in favor of the Guarantors against May and the Bank and dismissed their respective cross complaints. From this decree the Bank brings an appeal and for reversal urges that the Court erred (1) in finding that the reasonableness of attorney's fees and court costs incurred by the Bank in its foreclosure of the May debt was not before the Court and (2) the Court erred in not entering judgment for the Bank against Guarantors for the deficiency in the amount of $2,265.52 and by not requiring said amount to be paid out of the proceeds of the foreclosure of May's Deed of Trust to Guarantors securing a contemplated deficiency under the Guaranty. We consider these points together.

On June 23, 1954, May executed a note to the Bank and a chattel mortgage to secure his loan of $29,662.36. On July 5, 1954 the Guarantors executed and delivered to the Bank a Guaranty Agreement to the effect that the Guarantors, jointly and severally, would guarantee prompt payment of the May note to the Bank. Paragraph (4) of the Guaranty reads as follows:

'PROVIDED HOWEVER, before recourse against the Guarantors, the Bank shall first have mailed to them at Little Rock not less than ten days preceding a notice of default, and, if the default be not made good, shall thereafter foreclose the said mortgage (s) and the pledge or assignment of American Radio and Television, Inc., indebtedness, and of the life insurance if any, and shall apply the net proceeds, after all reasonable costs and expenses, upon the indebtedness which is hereby guaranteed, and the Guarantors shall thereupon pay upon demand any balance remaining.'

May defaulted on his note and after protracted litigation, beginning in 1958, May was decreed liable on his note, which was upheld by this Court in the Case of May v. National Bank of Eastern Arkansas, 231 Ark. 558, 331 S.W.2d 697. On June 29, 1960, the Bank collected its judgment in full. This judgment consisted of the sum of $20,055.21 which represented the balance of the original principal indebtedness plus the accrued interest to the date of collection. The judgment also included $1,745.52, which was 10% of the judgment when first rendered plus interest thereon until the date of collection, as an attorney's fee. The judgment and decree in that case was, accordingly, marked paid in full by the Bank on June 29, 1960.

Thereafter the attorney for the Bank rendered his statement for $4,011.04 to the Bank for his legal services in this extended and successful litigation against May. The Bank paid this fee. The Bank now contends that after applying the $1,745.52 as a credit to the $4,011.04 fee, there is left a deficiency in the payment of the indebtedness of May to the Bank in the amount of $2,265.52 and that it is entitled to recover this amount as a deficiency from its Guarantors since the Bank had recovered from May all the law would permit under the express terms of May's note to the Bank. The Bank made demand upon the Guarantors for this sum on the basis such deficiency should be construed as reasonable costs and expenses and within the meaning of Paragraph (4). We agree with the observation of the Trial Court in its written opinion that the charge made by the attorney to his client, the Bank, was fair and reasonable. We must also agree with the Court that the balance of the attorney's fee paid to him by the Bank in the sum of $2,262.52 is not an enforceable item of the Guaranty Agreement. We do not think the parties intended such a deficiency to be included in their agreement. We agree with the following pertinent language in the learned Trial Court's written opinion:

'It is the opinion of the Court that the parties had in mind the deficiency that would arise by reason of the failure of the assets to bring sufficient amount at the foreclosure sale to pay the debt, interest and costs of the Bank and that the guarantors should make up such deficiency. However, the alleged deficiency in the case at bar did not arise nor was demand made upon guarantors for the payment thereof until after a judgment had been satisfied by the Bank. It does not appear in this record but in the record of the case of No. 31765 [which was appealed to this Court and affirmed in May v. National Bank of Eastern Arkansas, supra] that the Bank had a supplemental agreement with W. D. May whereby May would pay the Bank eight per cent. Both the Bank and May recognized that the guarantors would not guarantee more than six per cent. However, the Bank in that case did not ask for eight per cent on the note foreclosed but contented itself with six per cent interest. Had the Bank asserted its claim of eight per cent per annum interest for the period of five years and eleven months of its dealings with May, as it had a right to do, it would have amounted to considerably more than the $2265.52 of excess attorney's fees claimed here. The precedent in cause No. 31765--which was prepared by the Bank's counsel and submitted to opposing counsel before being...