Opinion
No. 31682.
April 22, 1935.
1. BILLS AND NOTES.
One who executes renewal note notwithstanding knowledge of defenses to original note waives such defenses and is obligated to pay renewal note.
2. BILLS AND NOTES.
Where circumstances are such that reasonably prudent person, judged by normal standards, would or should have made inquiry which, if reasonably pursued with ordinary diligence, would have led to full knowledge of defenses to action on original note, inquiry must be made before executing renewal note.
3. BILLS AND NOTES.
Indorsees who executed renewal notes without inquiring whether payee had applied proceeds of lumber in liquidation of debt pursuant to alleged contract held bound on renewal note.
APPEAL from the circuit court of Forrest county.
HON.W.J. PACK, Judge.
Action by the First National Bank against L.E. Gay and another. From a judgment for plaintiff, defendants appeal. Affirmed.
F.M. Morris, of Hattiesburg, for appellants.
The general rule is that guarantors, sureties and endorsers, secondarily liable on one of several debts, cannot control the application which either the debtor or creditor makes of a payment.
21 R.C.L. 108, par. 115; 16 A.L.R. 651; 118 Ala. 573, 24 So. 37; 82 Fla. 396, 90 So. 461.
But this rule has been held to apply solely to cases in which the principal makes the payment from funds which are his own and are free from any equity in favor of the surety to have the money applied in payment of a debt for which the surety is liable.
21 R.C.L. 109, par. 116, Merchants Ins. Co. v. Herber, 68 Minn. 420, 71 N.W. 624; Kyle v. Chattahoochee National Bank, 96 Ga. 693, 24 S.E. 149.
The general rule that a surety cannot control the application of a payment is applicable solely in those cases where the principal makes the payment from funds which are his own and are free from any equity in favor of the surety to have the money applied in payment of the debt for which the surety is liable.
21 R.C.L. 109, par. 116; Bross v. McNicholas, 66 Or. 42, 133 P. 782, Ann. Cas. 1915B 1272; Sturtevant Co. v. Fidelity, etc., Co., 92 Wn. 52, 158 P. 740, L.R.A. 1917C 630; 48 C.J. 664, par. 126; Brown v. Scuer, 210 Ala. 47, 97 So. 50; Eagle Drug Co. v. White, 182 S.W. 378; Solomon v. First National Bank, 72 Miss. 854, 17 So. 383; Washington County Credit Corp. v. Miller, 157 So. 343.
The rule is that where there is a guaranty of a limited part of a debt, any payments made by the debtor must be applied first to discharge the portion guaranteed.
21 R.C.L. 108; Jones, Collateral Securities, pars. 550-551; Solomon v. First Nat. Bank, 72 Miss. 854, 17 So. 383.
The bank, appellee here, had a duty to the appellant to apply the said stumpage account to pay the particular note they endorsed, for the reason that said account was affected with an equitable lien for the payment of said note for the protection of appellants here.
3 R.C.L. 595, par. 223, and page 584, par. 214; Armour-Cudahy Packing Co. v. First National Bank, 11 So. 28, 69 Miss. 700.
Parol testimony was clearly competent to show that said deposit was made affected with a trust agreement for the payment of a particular debt.
Bank of Hickory v. McPherson, 59 So. 934; Sawyer v. Conner, 75 So. 131; Farmers Bank v. Smith, 107 Miss. 105, 64 So. 970; Butler v. Smith, 35 Miss. 457; Cocke v. Blackbourn, 57 Miss. 689; Ladner v. Stewart, 38 So. 748; Ohio Pottery Glass Co. v. J.R. Pickel Son, 108 Miss. 51, 66 So. 321; Schleter Mercantile Co. v. Brinley Co., 68 So. 444; Canada v. Y. M.V.R. Co., 101 Miss. 274, 57 So. 913; Sweatman v. Parker, 49 Miss. 19; 30 Cyc. 65; 15 Ency. Pleading Practice, 509.
A contract made for the specific benefit of a person, although that person is not a party to the contract, he may sue and recover upon such a contract, and if he can sue upon such contract, clearly he can defend upon being sued thereunder.
Yazoo M.V.R. Co. v. Sideboard, 161 Miss. 4, 133 So. 669.
As between the original parties and as against transferees who are not bona fide purchasers for value, a renewal note is open to all defenses which might have been made against the original note, at least insofar as they relate to consider such as want or failure of consideration, fraud, usury, gambling debts or other illegality.
8 C.J. 444, par. 658; Wade v. Thrasher, 10 S. M. 358.
Where a party has full knowledge of all defenses to a note and executes a new note payable at a future date, he then waives all his defenses and becomes obligated to pay the new note.
Tallahassee Home Bank v. Aldridge, 169 Miss. 597, 153 So. 818.
The judgment of the circuit court should be reversed.
It seems clearly that one who endorses a note in pursuance and consummation of a prior agreement between the maker and the payee of which he has knowledge, participates in the original consideration for the note and is, therefore, bound, but that an endorser will not be bound merely because of such an agreement between the maker and the payee if he has no knowledge thereof at the time he signed.
Devitt v. Foster, 159 Miss. 687, 132 So. 182, 74 A.L.R. 1092.
Heidelberg Roberts, of Hattiesburg, for appellee.
The rule is that where there is a guaranty of a limited part of a debt, any payments made by the debtor must be applied first to discharge the portion guaranteed.
Washington County Credit Corp. v. Miller, 157 So. 343; Solomon v. First National Bank, 72 Miss. 854, 17 So. 383.
It is a well established rule of common law, which has been embodied in statutes in a number of states, that when any judgment of any court, or any other judicial or official proceeding, or any grant or other disposition of property, or any contract, agreement, or undertaking has been reduced to writing, and is evidenced by a document or series of documents, the contents of such documents cannot be contradicted, altered, added to, or varied by parol or extrinsic evidence.
22 C.J. 1070, par. 1380A; Heaverin v. Donnell, 15 Miss. 244; Baskerville Whitfield v. Harris, 41 Miss. 535; Wren v. Hoffman, 41 Miss. 616; Pollock v. Helms, 54 Miss. 1; Red Snapper Sauce Co. v. Bolling, 95 Miss. 752, 50 So. 401; Traders' Sec. Co. v. Sullivan, 147 Miss. 72, 112 So. 869; Jeffery v. Jeffery, 157 Miss. 187, 127 So. 296; Divelbiss v. Jones, 164 Miss. 111, 144 So. 464.
Where an engagement is in general terms made payable in money, it is by legal implication payable in lawful money of the country, and parol evidence cannot be admitted to show an agreement that it should be paid in any other medium or manner, or that payment should be made only out of some particular fund.
22 C.J. 1076, par. 1384.
In the case now before the court there has never been any misunderstanding between the parties about the terms and provisions of the notes and about the fact that when the notes were presented to the bank the money would be given to J.C. Martin. The written stipulations of J.C. Martin to the bank executed in 1929 are not to be misunderstood. W.I. Martin and L.E. Gay are estopped to deny the correctness of the notes, which are the basis for this controversy.
Universal Credit Co. v. Thomas, 154 So. 272.
Argued orally by F.M. Morris, for appellant, and by M.M. Roberts, for appellee.
On August 7, 1929, appellants indorsed a six hundred dollar note. The money was to be used in the purchase of a small tract of timber. Appellants aver that there was an agreement with the bank and the maker of the note, as a condition of the indorsement, that the lumber coming from the timber should be invoiced through the bank and that the bank would deduct forty per cent of the net amounts and place the same to the credit of a stumpage account to be applied to the liquidation of the note. Appellants aver and show that in March, 1930, sufficient had been collected by the bank through the stumpage account to discharge and retire the note.
The bank contends, and offers proof to show, that the understanding was that the stumpage account should be credited to any debt of the maker of the note to the bank, and that there were other debts to which the stumpage account was in part credited, thus leaving a balance due on the original note, when the stumpage account was closed in March, 1930. There were numerous renewals of notes for this balance, and down to March 25, 1933, when the last renewals were executed, and upon which this suit was brought.
Although the lumber operations on this timber were concluded in March, 1930, and the stumpage account was then closed, appellants continued from time to time to indorse renewal notes for the balance claimed by the bank without any inquiry whatever of the bank, and without any intimation to the bank, or to any one else, that appellants supposed they had any defense to the note, and throughout a period of three years. And it was not until after the last renewals on March 25, 1933, that appellants asserted, in defense of the debt, the facts which they now submit as a payment and discharge.
Where a party has full knowledge of all defenses to a note and executes a new note payable at a future date, he then waives all his defenses and becomes obligated to pay the new note. Tallahatchie Home Bank v. Aldridge, 169 Miss. 597, 604, 153 So. 818. And where the facts and circumstances are such that a reasonably prudent person, judged by normal standards, would or should have made inquiry, which inquiry, if reasonably pursued and with ordinary diligence, would have led to full knowledge of his defenses, then it becomes the duty of the party or parties to make such inquiry or investigation before executing the renewal note, and if he fail to do so he is as much bound as if he had actual knowledge of all the facts. Franklin Phosphate Co. v. International Harvester Co., 62 Fla. 185, 57 So. 206, Ann. Cas. 1913C, 1247; Bank of Union v. Hungerford, 111 Okla. 225, 239 P. 252.
Applying the above rules, appellants are too late in the assertion of the defense now claimed by them. The facts were such as to have put them on inquiry. Had they inquired of the bank and had been refused the information, there would be a different case; but, as already stated, they did not inquire, although three years elapsed, during all of which time they were periodically executing renewal notes.
Affirmed.