Pac. Nat. Agr. Credit Corp.. v. Hagerman.

• Decision Date: 15 November 1935
• Docket Number: No. 4024.,4024.
• Citation: 51 P.2d 857,39 N.M. 549
• Parties: PACIFIC NAT. AGR. CREDIT CORPORATIONv.HAGERMAN.
• Court: New Mexico Supreme Court

39 N.M. 549

51 P.2d 857

PACIFIC NAT. AGR. CREDIT CORPORATION

v.HAGERMAN.

No. 4024.

Supreme Court of New Mexico.

NOV. 15, 1935.

Appeal from District Court, Chaves County; McGhee, Judge.

Action by the Pacific National Agricultural Credit Corporation against the Southspring Ranch & Cattle Company and others. Judgment for plaintiff, and defendant H. J. Hagerman appeals, and on his death Lowry Hagerman, administrator with the will annexed of H. J. Hagerman, deceased, was substituted as appellant.

Reversed and remanded, with directions.

Evidence held to support finding that creditor agreed to forego payment, from additional advance made to debtor, of accrued interest due from debtor and that diversion of portion of such advance to payment of accrued interest was misapplication, damaging debtor's surety.

Reid & Iden, of Albuquerque, for appellant.

Hurd & Crile, of Roswell, for appellee.

SADLER, Chief Justice.

H. J. Hagerman appealed from a judgment in favor of Pacific National Agricultural Credit Corporation, the appellee, against himself as indorser of a certain note for $62,000. The judgment was rendered by the district court of Chaves county in a suit against Southspring Ranch & Cattle Company, maker of the note. It does not complain of the judgment against it. Since this appeal was taken, H. J. Hagerman has died, and Lowry Hagerman, as his administrator with the will annexed, has been substituted as appellant. However, in all subsequent uses of the word “appellant,” the decedent, H. J. Hagerman, is meant.

The Southspring Ranch & Cattle Company, hereinafter referred to as “the ranching company,” at the time engaged extensively in the sheep business, in 1927 procured a loan of $70,000 from appellee. On November 1, 1931, the balance due on the note evidencing the indebtedness, which was secured by a chattel mortgage on all the sheep and equipment of the ranching company, was the sum of $50,000. The loan was increased at this time by the sum of $12,000. A new note in the sum of $62,000, dated November 1, 1931, was executed by the ranching company. This note was likewise secured by chattel mortgage on all the property described in the initial mortgage, and in addition a second mortgage on certain real estate and bore the indorsement of H. J. Hagerman and Percy Hagerman, president and vice president, respectively, of the ranching company and holders of 80 per cent. of its capital stock. H. J. Hagerman, himself, actually owned slightly more than one-third of such stock. There was also assigned to appellee as further security a lease from Lowry Hagerman to the ranching company covering certain lands used for grazing of the sheep. Lowry Hagerman was the son of Percy Hagerman and the secretary and a stockholder in the ranching company.

The increased loan was granted pursuant to a written agreement between appellee and the ranching company, one of the conditions of which was that the $12,000 should be used only for “expenses incident to running the livestock.” Seventy-five hundred dollars of the advance was to be made immediately available owing to the requirements of the herds, and the balance after receipt of a pre-sharing advance on the 1932 wool crop then under contract.

Without the knowledge or consent of the indorser, H. J. Hagerman, the appellee, contrary to its agreement, diverted $1,913.90 of the promised advancement by paying to itself accrued interest in that amount on the old loan. At the time, the sheep were running in the high, cold country between Encino and Lamy; the winter was unusually severe, the ground being covered with snow and ice, and so remaining throughout the season. Many sheep died, and a material loss resulted by reason of the unavailability of the amount of the deducted interest item for feed; the value of the pledged property being appreciably decreased and appellant's liability correspondingly increased as a result thereof.

The appellant, although its president, was not in active charge of the ranching company and knew only in a general way of its operations. However, before indorsing said note he talked over with his brother, Percy Hagerman, managing officer of the company, the status of the corporation, and matters connected with said loan. He also had before him a copy of the loan agreement and relied upon its terms in indorsing the note. He was moved to indorse the note in order to secure a renewal of the old indebtedness and procure for his company the additional sum of $12,000 in the hope that conditions would improve and the ranching company thus be enabled to pay its debts.

The appellant did not understand there would be any deductions from the $7,500 which was to be rendered immediately available upon compliance with the terms of the loan agreement. He would not have indorsed had he known all the money promised to be rendered immediately available would not be made so promptly upon execution of the loan agreement and compliance with its terms.

Appellant did not learn of this interest deduction by appellee until the month of February following. He made no protest on account thereof and acquiesced in the ranching company continuing to draw upon the amount of the agreed advancement and to expend it for the benefit of the corporation of which he was president and owner of one-third of its capital stock. However, his acquiescence, if it properly may be so designated, was merely passive. He did no affirmative act of acquiescence or approval relative to the improper diversion of the amount mentioned to payment to itself of this pre-existing debt of the ranching company.

The indorsement of said note by Percy Hagerman and the appellant, H. J. Hagerman, induced appellee's agreement to make the additional advance of $12,000. Without such indorsements the additional advance would not have been made.

After the advance in question had been arranged for but before any of the proceeds thereof had been made available to the ranching company, the appellant verbally guaranteed payment to Gross-Kelly & Co., of the cost of a carload of cottonseed cake approximating $500 furnished to, and used by, the ranching company in the care of its sheep. The purchase price of this item was paid to Gross-Kelly & Co., from proceeds of the additional advances made to the ranching company by appellee pursuant to said loan agreement. The appellant had knowledge of such payment and by virtue thereof was relieved of any claim of liability under his guaranty of payment for the carload of cottonseed cake as aforesaid.

From the foregoing facts, all of which are within the findings of the trial court, it was concluded that whatever information appellant acquired as president and director of the ranching company concerning its affairs he also knew in his individual capacity; that he had actual and constructive notice of the interest deduction by appellee, such actual notice being acquired in February, 1932; that there was a misapplication by appellee to appellant's damage of the interest item of $1,913.90 which it paid to itself from the proceeds of said advance; and that in thus diverting the amount of such payment appellee breached the agreement under which appellant had indorsed said note but that afterwards the appellant, with full knowledge of the facts, ratified said deduction. Finally, it was concluded that the appellant was liable on his indorsement and the judgment from which this appeal is prosecuted was entered accordingly.

[1] On the part of appellant we have presented a claim of discharge from liability by reason of the improper diversion by appellee of a portion of the loan promised to repayment to itself of a pre-existing debt due it from the indorser's principal. Appellee, availing itself of section 2 of rule 15, Rules of Appellate Procedure, complains as error committed against it, of the trial court's finding that there was ever any agreement on appellee's part to forego or postpone payment from the advance of the accrued interest due it; the contention being there is no substantial evidence to support the finding.

Of course, the appellant's defense at its threshold rests on the premise that an unauthorized diversion was made of a portion of the proceeds of the advance promised. It then first becomes important to dispose of this claim of error against it urged upon us by appellee. If sustained, there obviously is no occasion to listen to appellant. On this point, however, we need say no more than that our consideration of the record quite satisfies us that the finding assailed has adequate support in the evidence. The evidence on the issue conflicted, the trial court resolved the conflict in appellant's favor, so the finding is before us and must be accorded such legal consequence as its bearing on the case merits.

[2] Taking up appellant's contention, we think we may fairly assume it as conceded by appellee that the unauthorized diversion of this sum of approximately $2,000 in the repayment to itself of an antecedent debt, operating to the damage of appellant as the trial court found, results in appellant's discharge from liability as an indorser unless, as the trial court also found, the appellant, with full knowledge of the facts, ratified and approved the same. We need cite no authority to the proposition that any unauthorized change in the contract between the creditor and the debtor, particularly where such change operates to enlarge or increase the liability of a surety or indorser for the latter, operates to release such surety or indorser from liability.

We turn then to a consideration of the circumstances relied upon by appellee as support for the finding of ratification. The appellant challenges such finding as being without support. Whether it is presents the decisive question.

The parties devote considerable time in their briefs to the question whether knowledge acquired by the ranching corporation was imputed to appellant by virtue of his offices as president...