Young v. Farmers Bank & Trust Co.

• Decision Date: 27 April 1970
• Docket Number: No. 5--5175,5--5175
• Citation: 453 S.W.2d 47,248 Ark. 613
• Court: Arkansas Supreme Court
• Parties: Clyde M. YOUNG, Appellant, v. FARMERS BANK & TRUST COMPANY et al., Appellees.

Page 47

453 S.W.2d 47

248 Ark. 613

Clyde M. YOUNG, Appellant, v. FARMERS BANK & TRUST COMPANY et al., Appellees.

No. 5--5175.

Supreme Court of Arkansas.

April 27, 1970.

Mitchell D. Moore, Osceola, and Eugene E. Reeves, Caruthersville, Mo., for appellant.

Reid, Burge & Prevallet, and Garry L. Brewer, Blytheville, for appellees.

Gardner & Steinsiek, Blytheville, for intervenor.

GEORGE ROSE SMITH, Justice.

This case, now a three-party controversy, began as a simple action at law brought by one of the appellees, Farmers Bank & Trust Company of Blytheville, upon a $13,000 promissory note executed in 1963 by the sole defendant, the appellant Clyde M. Young, and co-signed by Clyde's brother Johnny as an accommodation maker. The bank, upon filing the suit, attached Clyde's interests in certain land. The validity of the attachment depends upon whether Clyde is still liable on the note, which is the main issue in this court.

Clyde defends the suit on the theory that the bank released him from liability on the original note by accepting in its place a substitute note for $13,000, plus $850 interest, executed solely by Clyde's brother Johnny. Before this action was filed Johnny Young went bankrupt. His trustee in bankruptcy, the appellee Frye, intervened in the case, asserting that Johnny paid Clyde's debt to the plaintiff bank and that Frye as trustee is therefore entitled to judgment against Clyde. Such a judgment would presumably become a prior lien against Clyde's land if the bank's attachment fails.

The circuit judge heard the case without a jury. The court sustained the Youngs' theory of the case, holding that Johnney's trustee is entitled to judgment against Clyde for the amount of the debt and that the bank no longer has any claim against Clyde. The court dismissed the bank's writ of attachment, but the court denied Clyde's claim for damages resulting from the assertedly wrongful attachment. Clyde appeals from the latter ruling, and the bank brings up the main issue by cross appeal.

We take up the cross appeal first. The bank contends that there is no substantial evidence to support the trial court's finding that the bank effectively discharged Clyde from liability to the bank by accepting Johnny as its sole debtor. In making that argument the bank insists that there was no consideration for its asserted release of Clyde's liability.

Upon the proof the trial court's judgment must be sustained. We need not go into nice distinctions about payment, accord and satisfaction, and novation. It is enough to say that as a matter of substantive law a creditor is at liberty to accept one debtor in place of another if the creditor chooses to do so. As Corbin puts it: 'When two persons are jointly indebted to a third, the creditor may accept the note of one of them either as a mere collateral security or as a substituted contract and satisfaction. If the latter is found to be the fact, the co-obligor is at once discharged by novation. * * * If a promissory note is given and accepted as immediate discharge of a prior claim and in substitution for it, there is no revival of the original right even though the note is never paid.' Corbin on Contracts, § 1293 (1962).

The basic question is one of intention. 'There seems to be no doubt that an accord agreement may itself operate as a satisfaction of or substitute for the original obligation if it can clearly be shown that it was intended and accepted as such.' Davis, 'The Executory Accord: Effect of New Agreement on Original Obligation,' 12 Ark.L.Rev. 160, 165 (1958). That was the effect of our holding in Mama v. Rout, 144 Ark. 641 (mem.), 215 S.W. 610 (1919). See also Restatement, Contracts, §§ 418, 419, and 428 (1932).

There is ample proof to show that the bank accepted Johnny Young as its sole debtor. This suit was brought upon a $13,000 note dated June 27, 1963, signed by Clyde and Johnny. On July 29, 1964, the bank, having reason to regard Johnny as the sounder financial risk, accepted Johnny's note for $13,850 as evidence of the debt plus interest. On the following day the bank entered that $13,850 payment as a credit to Clyde's ledger account, reducing that account to exactly zero. Clyde is not shown to have been carried ever again on the bank's ledgers as a debtor of the bank.

The bank put the original $13,000 note in a file along with Johnny's $13,850 note and now insists that the former stood as collateral for the latter. Even so, the bank's action in allowing Johnny to pledge the older note as collateral...