Canal Bank & Trust Co. v. Brewer

113 So. 552, 113 So. 522, 147 Miss. 885, 1927 Miss. LEXIS 358

• Court: Mississippi Supreme Court
• Decided: June 6, 1927
• Docket: Nos. 26344, 26527.
• Status: Published

Opinions

^* Corpus Juris-Cyc. References: Appeal and Error, 4CJ, p. 1116, n. 57; Bankruptcy, 7CJ, p. 349, n. 82; Bills and Notes, 8CJ, p. 620, n. 20; Injunctions, 32CJ, p. 427, n. 64; Judges, 33CJ, p. 1036, n. 78; Mortgages, 41CJ, p. 508, n. 4; Costs, 15CJ, p. 241, n. 11; p. 280, n. 98; p. 285, n. 43 New; p. 286, n. 56; Statutes, 36Cyc, p. 1106, n. 29; p. 1107; n. 35, 36; p. 1108, n. 38, 39, 40, 46, 47, 48, 52; p. 1112, n. 72; Ascertainment of real intention of legislature as primary consideration in construction of statute, see 25 R.C.L. 960; 3 R.C.L. Supp. 1435; 4 R.C.L. Supp. 1611; 5 R.C.L. Supp. 1355; 6 R.C.L. Supp. 1494. Both of these cases are appeals from decrees dissolving preliminary injunctions granted in the same case; both were argued together before the court in banc, and will be here so disposed of. The suit was begun by a creditors' bill filed for the purpose of setting aside two alleged fraudulent assignments by Brewer, who is insolvent, of several promissory notes, and for the purpose of subjecting the proceeds of these notes to the payment of any decree that might be rendered against Brewer on the claims of his creditors joining in the suit. The bill was filed by the Canal Bank Trust Company, and one other of Brewer's creditors afterwards joined therein. This creditor has not joined in, and is not a party to, the appeal in case No. 26344.

The suit by the bank is on six promissory notes, one, executed by Frank McNally to the Richardson May Land Planting Company, Limited, for forty thousand five hundred dollars, and five, executed by J.E. Townsend and W.B. Gidden to the Richardson May Land Planting Company, for thirty-nine thousand one hundred eighty dollars each, all of which bear the indorsement of the "Richardson May Land Planting Company, by Earl Brewer, President," and also the personal indorsement of Earl Brewer. All of these notes were pledged to the bank by W.P. Holland, into whose hands they had come in due course as security for a debt of five hundred thousand dollars, which he owed, and a large part of which he still owes, the bank. The promissory notes, which the bill alleges were fraudulently assigned by Brewer, consist of six notes executed by C.G. and B.K. Bobo, each for thirty-two thousand two hundred dollars, aggregating one hundred ninety-three thousand two hundred dollars, and eight notes, executed by W.L. Gates, each for eight thousand six hundred dollars, aggregating sixty-eight thousand eight hundred dollars. A half interest in these notes was assigned by Brewer to Cutrer Smith, a firm of lawyers composed of J.W. Cutrer and E.W. Smith, and the other half interest therein was assigned by Brewer to his daughter, Mrs. Earline Brewer Shelton.

Brewer was indebted to the bank for money borrowed, and the Gates and Bobo notes were pledged to the bank by him as security therefor. Brewer paid this debt, but the bank declined to surrender the Gates and Bobo notes. For some reason, not clearly disclosed, the Canal Bank Trust Company forwarded the Gates and Bobo notes to a bank at Clarksdale, Miss., and while they were in the possession of the Clarksdale Bank, Brewer sued that bank and the Canal Bank Trust Company for the possession of the notes, and for a judgment against the Canal Bank Trust Company for money it had collected on the notes. The Canal Bank Trust Company, in its answer, claimed the right to hold the notes under a pledge which Brewer had made to it thereof as a security for the debt due it by Holland, and under two or more pledges Brewer had made to it of the notes as security for his indorsement on the Gidden-Townsend and McNally notes, and by a cross-bill alleged that Brewer was president of the Richardson May Land Planting Company, Limited; that he had appropriated and dissipated the assets thereof, among which were the proceeds of the Gidden-Townsend and McNally notes, for which he was liable to account to the Richardson May Land Planting Company, to whose right the Canal Bank Trust Company should be subrogated, and prayed for such an accounting. Gidden and Townsend and McNally were not parties to the suit, and no decree was sought against Brewer on his indorsement of their notes, the ones here sued on. In the cross-bill, reference was made by the bank to the fact that they were not parties to the suit, and could not be made parties thereto by means of a cross-bill. This suit resulted in a decree for Brewer adjudging the contract by which he pledged the Gates and Bobo notes as security for Holland's debt to the bank, void; that Brewer had not pledged the notes to the bank as security for his indorsement on the Gidden-Townsend and McNally notes; that he was not liable for an acounting to the bank for any misappropriation or dissipation of the assets belonging to the Richardson May Land Planting Company; that the Gates and Bobo notes be delivered to him; and that the Canal Bank Trust Company pay him fifty-one thousand nine hundred sixty dollars, money adjudged to have been collected by it on the notes. This decree was affirmed on appeal to this court in the case of theCanal Bank Trust Co. v. Brewer, 143 Miss. 146, 108 So. 424, 47 A.L.R. 45, to which reference is here made for a more complete statement of the facts therein.

Brewer was represented in that litigation by Cutrer Smith, and he assigned to them a half interest in the Gates and Bobo notes and any money that he might recover from the Canal Bank Trust Company, the consideration recited therein being legal services to be rendered by Cutrer Smith in recovering possession of the notes and obtaining judgment against the bank for the money collected by it on the notes. This assignment was dated prior to the institution of the suit therein contemplated, but was not disclosed until after the termination of the case in the trial court. It was filed for record and thereby made public while that case was pending on appeal in the supreme court. While that case was in the supreme court, Brewer also assigned, in writing, a half interest in the Gates and Bobo notes to his daughter, Mrs. Earline Brewer Shelton, the recited consideration therefor being the cancellation of a debt due by Brewer to Mrs. Shelton of fifteen thousand dollars, and the assumption by Mrs. Shelton of a debt due by Brewer to his wife, amounting to thirty-three thousand four hundred three dollars and forty-three cents. This assignment was recorded a few days after the assignment to Cutrer Smith was recorded.

On the affirmance of that case by the supreme court, the Gates and Bobo notes, which were then in the hands of a receiver, who had been directed to hold and dispose of them as the court might decree, were delivered to Cutrer Smith and Mrs. Shelton by the receiver. The case was carried to the supreme court of the United States by writ of error; and, failing to obtain an order from this court directing the receiver to hold the notes pending the decision of the case by the supreme court of the United States, the Canal Bank Trust Company filed a bill in the Federal district court setting up the litigation then pending with reference to the Gates and Bobo notes, the appeal of the case to the supreme court of the United States, and prayed for an injunction against all of the necessary parties restraining them from disposing of the notes until the case could be decided by the supreme court of the United States. No restraining order was issued on this bill, and the injunction, on the hearing of the application therefor, was denied. The Canal Bank Trust Company then filed the bill here under consideration, and afterwards the Federal court dismissed the bill for the injunction pending therein.

Prior to the institution of the present suit, the Canal Bank Trust Company and other of Brewer's creditors filed a petition in the Federal court, praying that Brewer be adjudged a bankrupt and his property be disposed of accordingly. The bill of complaint here involved was filed while the bankruptcy petition was pending and before any adjudication thereon had been made. What disposition was finally made thereof by the Federal court does not here appear.

The five Gidden-Townsend notes are the last maturing notes of a series of ten that were executed by Gidden and Townsend to the Richardson May Land Planting Company, and were secured by a deed of trust on land. The McNally note sued on is one of a series of ten notes executed by McNally to the Richardson May Land Planting Company, and is secured by a deed of trust on land. Neither of these deeds of trust contain any stipulation giving any of the notes secured thereby priority over the others in the application thereto of the proceeds of the land in the event the deeds of trust should be foreclosed. The notes were indorsed by the Richardson May Land Planting Company of which Brewer was president, and by Brewer personally, and delivered to the Planters' Bank of Clarksdale, Miss., for a valuable consideration. Afterwards Holland, president of the Planters' Bank, borrowed on his personal note four hundred thousand dollars from the Missouri State Life Insurance Company for the use of the Planters' Bank, and pledged as security therefor all of the Gidden-Townsend and McNally notes. Holland requested the Missouri State Life Insurance Company to permit him to withdraw the five last maturing Gidden-Townsend notes and the four last maturing McNally notes. The Missouri State Life Insurance Company permitted him to do this, and returned to him the last five maturing Gidden-Townsend notes and the four last maturing McNally notes on his and the bank's agreement that in the event the deeds of trust should be foreclosed, the notes retained by the Missouri State Life Insurance Company should be first paid. This agreement was evidenced by a written contract, and also by a notation on the back of the notes withdrawn by Holland. The notation on the back of the McNally note here sued on reads as follows:

"This is one of a series of ten (10) notes secured by a deed of trust and this assignment is made on condition that the lien of this note shall be junior and subject to the lien of the six (6) notes maturing first as described in said deed of trust, and in case of foreclosure the six (6) notes maturing first shall be paid in full before any of the proceeds of sale shall be applied to the payment of this note."

The notation on the back of the Gidden-Townsend notes is in the same language except that it refers to five instead of six last maturing notes. Brewer claims, and we shall assume, that he was not informed of this agreement.

One of Brewer's contentions in the former case was that he was released from liability as indorser on these notes by virtue of this subordination agreement by Holland and the Planters' Bank with the insurance company but the court, in its decree, expressly adjudicated that he had not been released thereby.

The chancellor for the district in which the present suit is pending is disqualified from acting therein, and so certified to the Governor. Counsel representing all parties entered into a written agreement that Hon. Sam I. Osborn, a member of the bar of Leflore county, Miss., should try the case as special chancellor, and he was also, at their request, appointed by the Governor as such. A preliminary injunction was granted restraining Cutrer Smith and Mrs. Earline Brewer Shelton from disposing of the Gates and Bobo notes until the case should be finally heard; and a motion for its dissolution was filed by the appellees and heard by Chancellor Osborn, who dissolved the injunction as to Cutrer Smith, but retained it as to Mrs. Earline Brewer Shelton. From that decree, the case was brought to this court on direct appeal by the Canal Bank Trust Company, and on a cross-appeal by the appellees.

The following three contentions of the appellees are without merit:

First. The decree rendered by the chancery court in the case ofEarl Brewer v. Canal-Commercial Trust Savings Bank (nowthe Canal Bank Trust Company v. Earl Brewer), No. 3388 on the docket thereof, affirmed on appeal to this court, dismissing the bank's cross-bill, adjudicates that Brewer was not liable to the Canal Bank Trust Company on his indorsement of the Gidden-Townsend and McNally notes. Brewer's liability on these notes was not, and could not have been, presented for decision in that case.

Second. That the bill of complaint herein should be dismissed for the reason that it was filed while the suit in the Federal district court, hereinbefore referred to, for an injunction restraining Cutrer Smith and Mrs. Earline Brewer Shelton from disposing of the Gates and Bobo notes until the supreme court of the United States should decide the case, was pending.

Third. That the bill should be dismissed for the reason that it was filed while the bankruptcy proceedings against Brewer was pending. 7 C.J. 349; 1 Remington on Bankruptcy (3 Ed.), section 463. Whether the court below could render a final decree herein before the Federal court has disposed of the bankruptcy proceeding is not here involved, in which connection see OrgillBros. v. Coleman, 146 Miss. 217, 111 So. 291.

In the former case, the claim of the Canal Bank Trust Company to a lien on the Gates and Bobo notes by reason of a pledge, or pledges thereof made by Brewer to the bank as security for any indebtedness due by him or any one else to the bank, was presented for decision, decided adversely to the bank, and is therefore res judicata. The bank's right in the case now at bar is that only of an unsecured creditor.

Brewer was not released from his liability as indorser on the Gidden-Townsend and McNally notes because of the agreement by Holland and the Planters' Bank that, in the event the mortgages securing the notes should be foreclosed, the proceeds thereof should be first applied to the payment of those of the notes held by the Missouri State Life Insurance Company. The appellees' contention is that this agreement is, in effect, a fraudulent alteration of the notes. The notes were in no way altered by this agreement. It deals with and affects only the application to the notes of the proceeds of the mortgages by which they are secured. In other words, the agreement is one affecting collateral security, and is not embraced within the provisions of section 120 of the Negotiable Instruments Law; chapter 244, Laws of 1916; section 2698, Hemingway's Code; Brannon's Negotiable Instruments Laws (4 Ed.), p. 763, but is controlled by section 196 thereof (section 2774, Hemingway's Code), which reads as follows:

"In any case not provided for in this act the rules of law and equity including the law merchant shall govern."

When this agreement, with reference to the application of the proceeds of the deeds of trust securing the notes, was made, all of the notes were held by the Planters' Bank; and it had the right in assigning some of them to agree that the assignee should be paid first out of the proceeds of the deeds of trust. 41 C.J. 508; Bank of England v. Tarleton, 23 Miss. 173; Pugh v.Holt, 27 Miss. 462; Trustees of Jefferson College v.Prentiss, 29 Miss. 46; Goar v. McCandless, 60 Miss. 244. The only right of Brewer in this action is that if the manner in which the security for the notes here dealt with impaired the value of that security, or operated to his injury, he would be released from liability as an indorser on the notes to the extent that he has been injured thereby. Payne v. Commercial Bank ofNatchez, 6 Smedes M. 24; Clopton v. Spratt, 52 Miss. 251;Barkwell v. Swan, 69 Miss. 907, 13 So. 809; Picard v.Shantz, 70 Miss. 381, 12 So. 544; 8 C.J. 621; 3 R.C.L. 1279. No injury is shown to have resulted to Brewer because of the agreement made by Holland and the Planters' Bank with the Missouri State Life Insurance Company. He must show, not probable, but actual, injury therefrom, and we cannot indulge in any speculation as to what might happen.

The bank claims that this question was decided adversely to Brewer in the former litigation, and also that he is estopped from claiming any release from liability because of this agreement, for the reason that when the bank made him one of the loans under consideration in the former litigation, he agreed, before the bank would make the loan, that he would not claim to have been so released. It will not be necessary for us to express any opinion on either of these contentions.

Without setting forth the evidence as to the validity vel non of the assignment of the Gates and Bobo notes by Brewer to Mrs. Shelton, and to Cutrer Smith, it will be sufficient to say that the court below committed no error in retaining the injunction against Mrs. Shelton until the case should be tried on its merits. Judges McGOWEN, ETHRIDGE, and HOLDEN are also of the opinion that no error was committed in dissolving the injunction against Cutrer Smith; but Judge ANDERSON, COOK, and SMITH are of the opinion that this injunction should have been retained until the case is tried on its merits, not meaning to say thereby that when the case is tried on its merits the injunction should in no event be dissolved, but merely that it does not sufficiently appear from the evidence now presented that this assignment will be finally held to be valid.

While case No. 26527 was being heard, a motion was made and overruled to continue the hearing for a sufficient length of time to enable the appellants to take the deposition of a witness, who, they had just discovered, would testify to facts which they claimed would demonstrate the assignments of Brewer to Mrs. Shelton and to Cutrer Smith to be fraudulent. The existence of this evidence was unknown to the appellants when case No. 26344 was tried in the court below; and they have filed a motion in this court requesting that the case be remanded, without a decision, for the hearing by the chancellor of this newly-discovered evidence. We have no statute or precedent authorizing the remanding of a cause to the court below for the hearing of evidence discovered after the judgment or decree appealed from is rendered. So to do would inject into the procedure of this court a new and novel, though probably commendable, element; but we are of the opinion that as the law now is the motion cannot be sustained, and, consequently, it will be overruled.

Coming now to case No. 26527: After case No. 26344 was appealed to this court, the complainants filed a supplemental bill in the court below, setting forth that executions and garnishments were being issued on the decree rendered in the first litigation between the bank and Brewer, which decree was also included in the assignments of Brewer to Mrs. Shelton and Cutrer Smith, and prayed that it be permitted to pay the money adjudged to Brewer by that decree into court, and that a receiver be appointed to receive and hold the money pending the termination of the present litigation; that injunctions be issued restraining further attempts to collect the money adjudged to Brewer by that decree; and for certain other relief not here necessary to be set forth. A receiver was appointed in accordance with the prayer of this supplemental bill, and the money adjudged to be due Brewer by the court was paid over to him by the bank. A motion was made to dissolve this injunction, to discharge the receiver, and to direct him to pay the money in his hands over to Brewer, or Brewer's assignees. This motion was not presented to Osborn, the special chancellor appointed and agreed on for the trial of the case, but was presented to Chancellor Sledge of the Third district, accompanied by a certification from the chancellor of the Seventh district, in which the case was pending, of his disqualification to try the cause, and requesting Chancellor Sledge to act therein in his stead. Chancellor Sledge went to Clarksdale, in the Seventh district, and heard and decided the motion in vacation. When the motion was called for trial, the appellants filed a written objection to its being heard by Chancellor Sledge. This objection was based on two grounds: First, that Sledge was without power to hear and determine the motion outside of the district for which he had been elected; and, second, that the motion should be heard by Osborn because of his appointment by the Governor and the agreement relative thereto entered into by the parties to the litigation. This motion was overruled; and after the evidence was heard, the injunctions granted on the supplemental bill were dissolved, and the receiver discharged and directed to pay the money held by him to Brewer's assignees.

The objection to the jurisdiction of Chancellor Sledge should have been sustained. Section 165 of the Constitution recognizes the right of attorneys engaged in a case in which the regular judge or chancellor is disqualified to agree "upon a member of the bar to preside in his place;" and section 996, Code of 1906 (Hemingway's Code, section 716), expressly provides that such attorneys may so agree. These sections of the statute and the Constitution also provide for the appointment by the Governor of a special judge or chancellor to try a case in which the regular judge or chancellor is disqualified when the attorneys in the case fail to agree on a member of the bar to try it.

The appellees' contention in this connection is: That a member of the bar selected by agreement of counsel and appointed by the Governor to try a case in which the regular judge or chancellor is disqualified is vested thereby with no power to act in the case in vacation, but only with power so to do in term time; and that matters that arise in vacation in a case in which the regular judge or chancellor is disqualified must be presented to and acted on by a judge or chancellor of another district, under section 998, Code of 1906 (Hemingway's Code, section 718). The case relied on by them is Kelly v. State, 79 Miss, 168, 30 So. 49. That was a case in the circuit court wherein a special judge, appointed by the Governor because of disqualification of the regular judge, heard and disposed of a case in vacation, the character of the case being such that could have been heard and determined in vacation by the regular judge. The court, with some hesitation, held that a special judge could act only in term time, and that questions arising in a case in vacation should be submitted to and determined by the regular judge of another district under section 922, Code of 1892, the same statute now numbered section 998, Code of 1906 (Hemingway's Code, section 718). In that case there appears to have been no agreement of counsel relative to the matter. The recognition of section 165 of the right of attorneys engaged in a case to agree that it shall be tried by a member of the bar seems to recognize the right of a member of the bar so agreed upon to try and dispose of all questions that might arise in the case whether in term time or in vacation, and section 996, Code of 1906, (Hemingway's Code, section 716), should not, unless it expressly so provides, be construed to narrow that right. In most cases where a preliminary injunction has been issued, the necessity for passing on a motion to dissolve arises in vacation, the decision of which frequently practically brings the case to an end, and no good reason appears why the legislature should have intended to prohibit an agreement by the attorneys in the case that such motion should be acted on by a special chancellor in vacation. Moreover, section 506, Code of 1906 (Hemingway's Code, section 262), expressly provides that a chancellor may, with the consent of the parties or their solicitors, "try causes and deliver opinions and make and sign decrees therein in vacation." This statute is not limited to regular chancellors, and we see no reason for so limiting it by a strained construction thereof.

The agreement entered into with reference to the trial of the case by Chancellor Osborn covered every phase of it, and expressly stipulates that he should try and dispose of all matters arising therein either in term time or in vacation. The regular chancellor of the district had already certified his disqualification in the case, and there was no occasion for his again certifying such disqualification to Chancellor Sledge and requesting him to try the motion to dissolve the injunction. This certification and request added nothing to Chancellor Sledge's right to try the case, for section 998, Code of 1906 (Hemingway's Code, section 718), has no application, as there was a special chancellor who, under the agreement of the attorneys, was invested with full power to hear and dispose of the motion to dissolve the injunction. The chancellor being without jurisdiction to hear the motion for the reason just set forth, it will not be necessary for us to determine the effect on his decree of his having heard the case outside of his district. Questions discussed by counsel, and not specifically referred to in this opinion, are not decided.

The decree rendered by Chancellor Osborn in case No. 26344 will be affirmed, and the decree rendered by Chancellor Sledge in case No. 26527 will be reversed, and the case in both appeals will be remanded.

Affirmed in case No. 26344, and reversed in case No. 26527.