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North American Life Insurance v. Smith

Supreme Court of Mississippi, Division B
Feb 1, 1937
172 So. 135 (Miss. 1937)


No. 32484.

February 1, 1937.


Purchaser from mortgagor who assumes mortgage indebtedness becomes principal debtor to mortgagee and mortgagor becomes purchaser's surety.


Bill for foreclosure of mortgage, which bill named "George M. Forman" mortgagee and referred to and made an exhibit a deed by mortgagors showing that grantees assumed indebtedness to "George M. Forman Company of Chicago, Illinois," held demurrable as to grantees' personal liability for fatal variance, in absence of explanatory allegations, since terms of exhibit were controlling (Code 1930, secs. 374, 527).


Where conflict between an exhibit and allegations of bill arises, the former controls (Code 1930, secs. 374, 527).


Where mortgagee looked to others than mortgagors for payment of indebtedness for 10 years after conveyance by mortgagors to purchasers who assumed indebtedness, gave no notice to mortgagor of invalid foreclosure proceeding, and allowed principal and interest to remain in default for several years without suit, mortgagor held not discharged as surety for her grantees, because of mortgagee's want of diligence, especially where mortgagor made no attempt to put creditor in default under statute (Code 1930, sec. 2957).


Mere want of diligence, indulgence, delay not amounting to bar of statute of limitations, or passiveness of creditor towards principal debtor, does not discharge surety (Code 1930, sec. 2957).


Statute providing method by which surety may put creditor in default and thereby be discharged by demanding action against principal debtor by next term of court after 30 days from giving of notice held not repealed by Negotiable Instruments Act (Code 1930, sec. 2957).

APPEAL from chancery court of Washington county. HON. J.L. WILLIAMS, Chancellor.

Percy Bell, of Greenville, and J.C. Roberts, of Cleveland, for appellant.

A variance, to be material, must actually mislead the adverse party to his damage in maintaining his action or defense upon the merits.

Dudley v. Duval, 70 P. 68; Prestwood v. McGowin, 41 So. 779; Ostrom v. Woodbury, 122 P. 825; Southmayd v. Southmayd, 5 P. 318; Carter v. Baldwin, 30 P. 595.

The variance between the allegations of the bill and the exhibits was between the words "Geo. M. Forman" and "Geo. M. Forman Company," which we contend was not material, but was the subject of proof; certainly, there was not such a variance as would mislead W.R. Moore and J.L. Nichols to their prejudice in maintaining their defense to the action and the proof was introduced that connected the exhibits and made the assumption valid liability of the said W.R. Moore and J.L. Nichols.

If we are correct in our view that there was no fatal variance between the allegations of the bill and the exhibits thereto, then the court was in error in sustaining the demurrer, and if in error in sustaining the demurrer, then the court erred in not fixing the order of liability of the various defendants in the court below.

Gilliam v. McLemore, 106 So. 99.

Waiver is a voluntary and intentional relinquishment or abandonment of a known existing legal right, advantage, benefit, claim or privilege, which except for such waiver the party would have enjoyed.

67 C.J. 289.

What facts and circumstances as set up by the defendant, Mamie W. Smith, in the court below in her answer, would constitute a waiver, we are unable to discover, unless forbearance and nonaction for a period of two years after a part of the debt became due constitutes such a waiver; but our contention is that the debt being legal with full consideration as shown by the evidence in the beginning, and the debt not having been paid, that only the statute of limitations would bar the collection of the debt, unless the facts and circumstances surrounding the attempted foreclosure of the property by the void substitution of trustee and the going into possession by the complainant of the property after the void sale, should constitute a waiver. However, our understanding of the law is that when the complainant went into possession of the property after the void sale, it thereby became, by operation of the law, a mortgagee in possession. We call the court's attention to the fact that in the face of the notes, personal demand for payment was waived by the makers thereof, and certainly Mamie W. Smith, one of the makers of these notes, cannot now be heard to complain because she did not receive personal notice that the notes were not paid.

Section 2167 of the Mississippi Code of 1930 governs that notice should be given at foreclosure, and when the requirements of this section are met, parties affected cannot complain.

In absence of the wilful wrong, neglect or fraud, a mortgagee who, following default on the part of the mortgagor, is in possession of the premises, need only account for the proceeds actually received.

Watson v. Perkins, 88 Miss. 64.

But since such power of appointment has been held to be purely personal and one that cannot be delegated, the attorney in fact of the holder of these notes had no right to make a substituted trustee, and, such appointment being void, the sale made by such trustee was void.

Allen v. Alliance Trust Co., 84 Miss. 319; Carey v. Fulmer, 74 Miss. 729; Hartly v. O'Brien, 70 Miss. 825; Watson v. Perkins, 88 Miss. 76.

The surety is in all respects equally bound with the principal for the payment of the debt, so far as the creditor is concerned. He can, therefore, never claim to be released without showing that he has been in some manner damaged by the act of the latter.

Clopton v. Spratt, 52 Miss. 251.

The creditor, it is true, is his trustee of all securities placed in his hands for the protection of the debt, but surely he is no more bound to protect the surety than the latter, with the same facilities, is bound to protect himself. The creditor discharges his duty when he takes care that no affirmative act of his shall either diminish the value of the security, or tie up his own hands against the principal debtor, or release any claim he holds against the property of the latter.

Indulgence or nonaction, though in the meantime the principal should become insolvent, unaccompanied by any act of the creditor whereby the hazard is increased, will not discharge a surety. Nor will the failure of the creditor to present his claim to the administrator of the principal, whereby the debt against his estate was lost.

Wright v. Watt, 52 Miss. 634; 4 S. M. 165; 7 S. M. 437.

In the case at bar, there was only an indulgence on the part of the creditor, but no agreement and no valuable consideration. Then, too, there was no delinquency, in so far as appellant was concerned, until March 1, 1926.

The right to foreclose was the result of contract contained in the mortgage.

Thompson v. Hauze, 48 Miss. 444; Dibrell v. Carlisle, 48 Miss. 691; McDonald v. Vinson, 56 Miss. 497; Green v. Gaston, 56 Miss. 748; Leake v. Caffey, 19 So. 716.

We submit that no act of appellant can be taken to have the effect of penalizing it by a cancellation of the liability of the appellee for any deficiency that may or might exist after the sale made by the commissioner appointed by the court below.

We respectfully submit that this cause should be reversed and remanded for further proceedings.

Shands, Elmore, Hallam Causey, of Cleveland, for appellee, Mamie W. Smith.

The appellee contends that if the appellant intended to hold her liable for the payment of these notes, appellant, or its agent, for the collection of the debt, ought to have given her, or her husband, C.R. Smith, notice of the nonpayment of the notes at maturity, so that they would have an opportunity to protect themselves by subrogation, or other legal process, and indemnify themselves against the principal obligators, the assumptors of the debt. That by reason of the long and persistent failure of the appellant to give the appellee and her husband, C.R. Smith, notice of the nonpayment of the notes, has discharged the appellee from any liability with respect to the notes; that the conduct of the appellant, and its agents, and the letters and other correspondence, led the appellee and her husband, C.R. Smith, to believe that appellant was not holding, and did not intend to hold, appellee or her husband for the payment of the indebtedness. That no notice whatever of the foreclosure proceedings was given to the appellee, or her husband, C.R. Smith, and they were entirely ignorant of the foreclosure, and ignorant that appellant would hold them liable for a deficiency, until after the foreclosure, and for that reason, appellee and her husband were not present at the sale to protect their rights; that after the foreclosure, appellant took possession of the property, and rented the property to tenants, who acted in good faith, in treating appellant as the owner of the property.

A complainant cannot obtain the aid of a court of equity if he comes before the court with unclean hands.

1 Pomeroy (4 Ed.), sec. 397; Griffith's Chancery Practice, 42; 21 C.J. 182, 183.

When C.R. Smith conveyed the property to Moore and Nichols, the latter assumed the debt, and thereby became primarily liable to the appellant to pay the debt, and C.R. Smith and the appellee became secondarily liable. Likewise, when Moore and Nichols conveyed to Pitts and Weeks, the latter became primarily liable, and C.R. Smith and appellee continued to be secondarily liable, and when Pitts and Weeks conveyed to Mrs. Mabel H. King, she became primarily liable, and C.R. Smith, and appellee continued to be secondarily liable.

Gilliam v. McLemore, 141 Miss. 253, 106 So. 99; Nelson v. Brown, 140 Mo. 580, 41 S.W. 960, 62 Am. St. Rep. 755.

The appellant cannot say that it has not accepted the assumptors as the primary debtors, because the appellant has sued the assumptors in this action to recover a judgment for the debt.

Western Union Tel. Co. v. Douglas, 133 S.W. 877; McLeod v. B. L. Assn., 168 Miss. 457, 151 So. 151.

The appellant has not only adopted the contract whereby the assumptors became primarily liable, and the Smiths secondarily liable, by suing on the contract, but more than ten years ago the appellant, acting in conjunction with its agent, George M. Forman Company, who was an agent coupled with an interest in the notes, accepted payments from the assumptors, and applied them on the debt. The appellants by letters to its agent in some instances urged its said agent to be more vigilant in collecting the debt from the assumptors, and in other instances suggested forbearance; and during all of such period, the appellant said not a word to the Smiths about the assumptors being in default.

As we have seen, in Gilliam v. McLemore, supra, as between the original mortgagor and his assumptor, the mortgagee "is bound to recognize the condition of suretyship, and to respect the rights of the surety in all of his subsequent dealings with them."

41 C.J. 734; First National Bank v. Welbern, 93 N.W. 1002; Reeves Co. v. Jowell, 140 S.W. 364; Clopton v. Spratt, 52 Miss. 251.

It is confessed in this record by appellant that the deed of trust was not properly foreclosed as a result of negligence, inattention and lack of skill; that only delay has ensued since the obligation was incurred, and no effort has been made to collect the debt from the persons primarily liable.

Wright v. Mobley, 52 Miss. 634; Island Savings Bank v. Galvin, 37 A. 809.

The case of Crosby v. Woodbury, 89 P. 34, announces the general rule, that where a creditor has in his hands, or under his control, property which may be applied to the satisfaction of the debt, the surety for such debt has the right to have the property so applied, and any affirmative act of the creditor, which prevents such application releases the surety to the extent of his injury.

Montgomery v. Sayre, 34 P. 646; Dibert v. Wernicke, 214 Fed. 673; Rogers v. Barnes, 47 N.E. 602.

As we have seen, the assumptor becomes personally and primarily liable to pay the mortgage debt, and the mortgagor becomes secondarily liable to pay such debt, and that a release of the assumptor will operate as a release of the mortgagor, "because the doctrines of suretyship control the dealings between the three parties."

Therefore, the agreement on the part of the assumptor is that he, personally, will save his surety harmless from any liability on account of the debt, not only will he personally see that the debt is paid, but he agrees further that the property will also stand as security for the payment of the debt, and a release of the assumptor will operate as a release of the surety.

We say that taking the bill of complaint on its face, the demurrer was good, and should have been sustained, because the allegations of the original bill indicated that Moore Nichols owed a debt to an individual, whereas the exhibit showed that Moore Nichols owed a debt to a corporation. Appellants original bill even charged that George M. Forman and Company was a corporation, and the very name "George M. Forman and Company" would indicate that such company was a corporation.

Winner Meyer v. Weems, 77 Miss. 662; Carpenter v. Douglass, 104 Miss. 74, 61 So. 161; Swope v. Watson, 136 Miss. 348, 101 So. 488.

The point of similarity in the two cases, Federal Land Bank v. Robinson, 160 Miss. 546, 134 So. 180, and the case at bar, is this: In each instance the creditor threw his debtor off guard — switched his position, without notice to his debtor, and in the Robinson case, he was permitted to recover damages, and have the damages applied in extinguishment of his debt. The court also held that notice of the foreclosure sale, was not notice to Robinson, for: "It is idle to say that the notice of sale published in the newspaper was any kind of notice to the mortgagor, unless by evidence the fact of that publication is brought home to him. It is not contended that there was any other notice under these facts, the mortgagor was denied the privilege of attending the second sale and protecting his interests."

National Bank of Brunswick v. Gorenflo, 160 So. 911.

The decision of the trial court, as shown by the final decree, to the effect that appellant is not entitled to a judgment against appellee is a general finding, based as we insist on ample proof appearing in the record, and such decision is clearly not manifestly wrong, but is fully warranted by the proof. The court had the right to hold that the value of the land was equal to the debt, and that appellant should be required to accept the property at its proven value. The court rightfully allowed appellant to have a sale in order to put the title in themselves if it desired its title cleared of the claims of other persons, or to enable it to realize its debt from some third person who might desire to become the purchaser.

Federal Title Mortgage Guaranty Co. v. Lowenstein, 166 A. 538; Fidelity Realty Co. v. Fidelity Corp., 166 A. 727.

It is the right of the surety to be protected against loss to the extent of the principal's property, the surety not being bound to pay anything that the principal's property will pay.

D.L. W.R.R. v. Oxford Iron Co., 38 N.J. Eq. 151; Fruzynski v. Phillips, 168 A. 168; Baader v. Mascellino, 166 A. 466; Suring Bank v. Gise, 246 N.W. 556; Fancher v. Gammill, 148 Miss. 723, 114 So. 813.

We insist that it would be idle to say, we are almost persuaded to say that it would be foolish to say, that a court of equity cannot give relief to a person secondarily liable under the facts as disclosed by this record.

The appellant did not lay a foundation for an accounting, by allegations in its bill, or by proof. The court cannot appoint a master to engage in an exploring expedition, when no facts are alleged in the pleadings to justify the sending forth of the explorer.

McLeod v. Magee, 95 Miss. 439, 50 So. 66; Hardy v. Gregg, 2 So. 358; Mortgage Co. v. Jefferson, 69 Miss. 771, 12 So. 464; Griffith's Chancery Practice, sec. 567.

Osborn Lott and R.J. Pettey, all of Greenwood, for appellees, W.R. Moore and J.L. Nichols.

The learned chancellor sustained the demurrer upon the well settled principle that where there is a variance between the allegations of the bill and the exhibits thereto, upon which the relief, if given, must stand, then the exhibits must control. This principle is so well settled not only in this state, but elsewhere, that it is somewhat embarrassing to argue it, but remembering Justice Anderson's admonition not to say it is "horn-book law" but to cite the authorities, we proceed to do so.

Section 527, Code of 1930; 21 R.C.L. 476; House v. Gumble Co., 78 Miss. 259, 29 So. 71; Carpenter v. Douglass, 104 Miss. 74, 61 So. 161, 425; McNeill v. Lee, 79 Miss. 455, 30 So. 821; Montgomery v. Hanover National Bank, 79 Miss. 443, 30 So. 635; Quarles v. Hucherson, 139 Miss. 356, 104 So. 148; Millican v. Meridian Light Ry. Co., 121 Miss. 806, 83 So. 816, 9 A.L.R. 165; Griffith's Chancery Practice, page 189, par. 192.

The only thing we want to impress upon the court is that the exhibit, to-wit, the deed from Smith to Moore and Nichols, is the basis of the relief prayed for as against Moore and Nichols. It is respectfully submitted that none of the cases relied upon by appellant and cited by him in discussing the case are in point. The three cases relied upon, one from Alabama, one from Washington, and the other in Pacific Reporter, involved variances between the allegations of the petition and the proof and not variances between the allegations of the petition and the exhibits thereto, upon which the relief was sought.

Columbian Mutual Life Assurance Soc. v. Harrington, 139 Miss. 826, 104 So. 297; Keystone Lbr. Yard v. Y. M.V.R.R. Co., 47 So. 803; White v. Moales, 147 Miss. 758, 83 So. 341.

Appellant filed its bill in the chancery court of Washington county against appellees to foreclose a mortgage on land theretofore executed by appellee Mamie W. Smith and her husband, C.R. Smith, to George M. Forman, to secure an indebtedness of $25,000. The Smiths were made parties, and also subsequent vendees of the mortgaged premises, among whom were W.R. Moore and J.L. Nichols. By the bill appellant sought a deficiency decree against them if the proceeds of the sale of the land were insufficient to pay the mortgage indebtedness and expenses. There was a final hearing on bill, answers, and proofs, resulting in a decree for foreclosure, and denying liability for any deficiency on the part of Mrs. Mamie W. Smith and Moore and Nichols. From that decree appellant prosecutes this appeal.

C.R. Smith and his wife, Mamie W. Smith, on June 19, 1919, executed their promissory notes, payable to George M. Forman, aggregating the sum of $25,000, and to secure the same gave a mortgage on a section of land owned by him. The final payment on the notes was due March 1, 1930; the rate of interest was 7 1/2 per cent. per annum. On August 16, 1919, C.R. Smith and wife conveyed the land to Moore and Nichols. The deed recited, as a part of the consideration, the assumption by them of the mortgage indebtedness of $25,000. As an additional consideration for the conveyance of the land Nichols and Moore were to pay the Smiths, $4,060. On the 11th of October, 1919, Moore and Nichols conveyed the land to W.T. Pitts and A.B. Weeks. In that deed Pitts and Weeks assumed the indebtedness Moore and Nichols owed Smith and wife, and also the $25,000 indebtedness to "George M. Forman Company." On the same day Pitts and Weeks conveyed the land to Mrs. Mabel H. King. In the deed she assumed the Moore and Nichols indebtedness to the Smiths and likewise the $25,000 indebtedness to "George M. Forman Company of Chicago, Illinois." On October 27, 1922, the deed of trust by Nichols and Moore in favor of the Smiths was foreclosed in pais, at which sale P.L. Abel purchased the land. Afterwards he conveyed the land to Charles Forman, brother and associate in business of George M. Forman. The record shows that Charles Forman did not hold title to the land adversely to George M. Forman. On September 12, 1919, George M. Forman assigned the Smith notes and mortgage to secure the same to appellant.

C.R. Smith died intestate and insolvent pending the litigation. He and all of the other defendants, except his wife and Moore and Nichols, sought to be held for any deficiency were eliminated for reasons unnecessary to state. Neither side makes any point on their disappearance from the case.

In the latter part of 1929 appellant had a foreclosure of its mortgage in pais, at which sale it purchased the land for $12,500. Appellant thereupon went into the possession of the land, and has so continued since. The foreclosure sale was void, for reasons unnecessary to state. There is no question as to that. In 1936 appellant, recognizing the invalidity of the foreclosure, filed the bill in this case for that purpose, resulting as above stated.

Under the principles laid down in Gilliam v. McLemore, 141 Miss. 253, 106 So. 99, 43 A.L.R. 79, the vendees of the land acquiring title through the Smiths, the original mortgagors thereof, by assuming the payment of the original mortgage indebtedness, became principal debtors to the mortgagee, and the Smiths became their sureties. The right to a deficiency judgment was based upon the principles growing out of that relation. Moore and Nichols demurred specially to the bill, upon the ground that there was a fatal variance between its allegations and the exhibit on which it was based. The demurrer was sustained, and, appellant declining to amend, there was a dismissal as to them. That action of the court is assigned as error.

As shown, the original indebtedness was payable to George M. Forman and by him assigned, with the mortgage to secure it, to the appellant. The bill alleged that Moore and Nichols, in the deed to them, assumed this indebtedness as a part of the consideration. The bill referred to the deed and made it an exhibit. The exhibit itself shows that, instead of assuming the indebtedness to George M. Forman of $25,000, Nichols and Moore assumed an indebtedness of that amount to "George M. Forman Company of Chicago, Illinois." The bill contained no allegation that George M. Forman and George M. Forman Company of Chicago, Illinois, were identical, or what the relation was, if any.

If the exhibit controls the allegations of the bill as we hold it does, the relation of principal and surety never arose between the Smiths and Moore and Nichols. Section 527, Code of 1930, provides, in substance, that a copy of any writing of which profert is made or ought to be made, shall be annexed to and filed with the pleading, and, if not so annexed and filed, evidence thereof shall not be given on the trial. Section 374 provides that exhibits filed with a bill as a part thereof, shall be considered, on demurrer, as if copied in the bill. If there is a conflict between the exhibit and the allegations of the bill, the former controls. Griffith's Chan. Prac., sec. 192, p. 189; House v. Gumble Co., 78 Miss. 259, 29 So. 71, 21 R.C.L., p. 477.

Mrs. Smith claimed that she was discharged as a surety for the vendees because of the manner in which appellant dealt with them with reference to the indebtedness. George M. Forman Co., appears to be a loan brokerage concern with headquarters in Chicago; it had a brokerage interest in the original mortgage indebtedness. Collections on the indebtedness for appellant were made principally through that company. The evidence shows that, after the conveyance by the Smiths to Moore and Nichols, and for something like ten years, appellant looked to others interested in the land, not to the Smiths, for the payment of the principal and interest of the mortgage indebtedness, although there was no express agreement on the part of appellant discharging the Smiths and accepting the others as principal debtors. Mrs. Smith had no notice of the foreclosure in pais which took place in the latter part of 1929. When the bill in this case was filed, the principal and interest of the indebtedness had been in default for several years. We are of the opinion that the contention is without merit.

Mere want of diligence on the part of a creditor in proceeding against his principal debtor does not release the surety. Johnson v. Planters' Bank, 4 Smedes M. 165, 43 Am. Dec. 480. Neither does mere indulgence, delay, or passiveness on the part of the creditor towards the principal debtor discharge the surety. Delay not amounting to a bar of the statute of limitations in enforcing collateral securities which the principal debtor may have placed in the creditor's hands does not discharge the surety. Clopton v. Spratt, 52 Miss. 251. The failure of the payee of a promissory note to probate it against the estate of the principal maker, thereby permitting it to become barred as against him, will not prevent recovery against the surety on the note. Johnson v. Success Brick Machinery Company, 104 Miss. 217, 61 So. 178, 62 So. 4.

Section 2957, Code of 1930, which has been in our codes for a long time and was not repealed by the Negotiable Instruments Act (First National Bank v. Rau, 146 Miss. 520, 112 So. 688), provides a method by which the surety may put the creditor in default and thereby be discharged from further liability. In substance it provides that any surety or accommodation indorser for another may, at any time after the debt has become due, give notice in writing to the creditor to commence and prosecute legal proceedings against the principal debtor, if living and resident within the state, for the recovery of the debt; and, if the creditor fails to sue by the next term of the court, in which the same should be brought, to be held after the expiration of thirty days from the giving of the notice and to prosecute the same to effect, the surety shall be discharged from liability. The record shows that the sureties made no attempt to comply with this statute.

Affirmed as to Moore and Nichols, and reversed and remanded as to Mrs. Smith.

Affirmed in part; reversed and remanded in part.

Summaries of

North American Life Insurance v. Smith

Supreme Court of Mississippi, Division B
Feb 1, 1937
172 So. 135 (Miss. 1937)
Case details for

North American Life Insurance v. Smith

Case Details


Court:Supreme Court of Mississippi, Division B

Date published: Feb 1, 1937


172 So. 135 (Miss. 1937)
172 So. 135

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