Graham v. Pepple

97 So. 180, 132 Miss. 612, 30 A.L.R. 1278, 1923 Miss. LEXIS 95

• Court: Mississippi Supreme Court
• Decided: July 2, 1923
• Docket: No. 23420
• Status: Published

Opinion

Cook, J.,

delivered the opinion of the court.

This suit was begun in the circuit court of Sunflower county by the appellant, plaintiff in the court below, against A. H. Jenkins, on whom process was not served because he was a nonresident, W. B. Bolen, O. C. Miller, and the appellee, W. O. Pepple. The suit is based on a promissory note, which was signed by the appellee and said Bolen and Miller, and delivered to the said A. H. Jenkins, to evidence the sum owing Jenkins as the purchase money for a grist mill and other machinery, and which was indorsed by Jenkins and transferred in due course of trade, for value, before maturity, to the appellant. A contract was executed contemporaneously with the note evidencing the sale of the grist mill and other property from Jenkins to Bolen and Miller, in which the note is described and the terms and conditions of the sale set forth.

The appellant, in his declaration, exhibited the said note, claimed a lien securing it under chapter 83 of the Code of 1906 (sections 2436, 2437, and 2438 of Hemingway’s Code) for the purchase money for the property, and filed his affidavit designating the said property, and averring that it was liable for the said indebtedness. A writ of summons and seizure was issued and personally served on the appellee and on the said Bolen and Miller, and the sheriff took possession of the property. On the return day pleas were filed by the appellee, and a default judgment was entered against Bolen and Miller, and the property was condemned and ordered to be sold to satisfy the said judgment, and by agreement of appellant and appellee the property was sold, and the net proceeds of the sale, amounting to three hundred and thirty-seven dollars was applied as a credit on the note, leaving a balance due on the note of nine hundred and seventy-three dollars and seventy-two cents. At the trial there was no dispute about the amount of the balance due on the note, but the appellee disputed his liability to pay this balance by a notice filed under the plea of the general issue averring, in substance: First, that he was an accommodation indorser, on the note; that after the maturity of the note he gave the appellant notice as provided by section 3731, Code of 1906 (section 2907, Hemingway’s Code), to commence and prosecute legal proceedings against the said Bolen and Miller, and because the appellant failed to commence such proceedings by the next 'term of the circuit court held after the expiration of thirty days from the giving of the notice, that ¿e was thereby discharged from further liability; and, second, that Bolen and Miller were solvent at the time the note became due; that after the note became due the appellant extended the time for thé payment of the note without the knowledge or consent of the appellee, and neglected to take steps to collect the same; that because of such non-action of the appellant the property given as security decreased in value; that, if action had been taken when the note became due, the debt could have been paid by a sale of the property, and the appellee would have been relieved of the payment of the note, and that the extension of time granted to Bolen and Miller precluded the appellee, as an indorser on the note, from taking possession of the property and selling it to pay the note.

In the presentation of his defense the appellee offered in evidence certain letters, which were identified by the appellant, the first one reading as' follows:

“Ruleville, Miss., Jan. 1st, 1921.

“Mr. A. 0. Graham, Cleveland, Miss — Dear Sir: Mr. W.. O. Pepple, of this place, has turned over to us for attention your letter to him, of date December 24th, in regard to the note given to W. B. Borid and 0. 0. Miller to A. PI. Jenkins, secured by deed of trust on personal property. We take the position that Mr. Pepple is not liable, but would suggest to you that you proceed against the makers of this note and against the property secured by the deed of trust to get your money. We would suggest that you take it up direct with Mr. Bond or Miller, and perhaps they could straighten the matter up with you.

“Yours very truly, Franklin & Easterling.”

To this letter appellant replied as follows:

“Cleveland, Miss., 1/4/1921.

.“Franklin & Easterling, Ruleville, Miss. — Dear Sirs : Yours of January 1st to hand and noted. Will say am much surprised that you take the position that Mr. Pepple is not liable, while his signature speaks for itself, and principally upon his signature I based the validity of the note. I have taken this matter up with Bolen a time or two, and have indulged from time to time at his request, and yet have no results (satisfactory) and feel that I have extended to Mr. Pepple the courtesy due him, in giving him notice before procedure to collect by distress, which carries an extra ten per cent, and means one hundred dollars more. Will say now. that it is up to me to begin action unless something is done in a. way of settlement of this matter, and will say it is very unsatisfactory to me to do so.

“Yours very truly,

A. C. Grai-iam.”

On September 27, 1920, the appellant addressed the following letter to W. B. Bolen:

“Cleveland, Miss., 8/27/20.

“Mr. W. B. Bolen, Ruleville, Miss. — Dear Sir: Yours of recent date received and noted, and as requested I have instructed the bank here to hold the note till Oct. 1st, at which time I hope you will be in shape to take up, as at that date I have some paper maturing, and will depend upon this paper to be paid promptly.

“Yours very resp.,

“A. C. Graham.”

Again on October 8, 1920, the appellant addressed a letter to W. B. Bolen ivhich reads as follows:

“Cleveland, Miss., 10/8/1920.

“Mr. W. B. Bolen, Ruleville, Miss. — Dear Sir: Yours of 6th inst. received and noted and while I would be more than glad to carry this paper, just now it is impossible, as I am due this money to the bank here and I would be very glad that you make arrangements there to take it up; as requested have extended the time from Sept. 1st to Oct. 1st, which I could do at that time, as my papers did not mature till Oct. 1st, and the bank is demanding payment, and under circumstances would more than appreciate it if you would make payment, which I am sure you can do with your indorsers.

“Yours very respt,

A. C. Graham.”

The appellee testified that he signed the note as an indorser and turned it over to Bolen and Miller to be negotiated by them, and that they paid no more attention to the note or security, and thought the note had been paid until he received a letter from appellant which was dated December 24, 1920. At the conclusion of the testimony both parties requested peremptory instructions, and, the court having granted the peremptory instruction requested by the defendant, appellee, this appeal was prosecuted from the judgment entered in accordance therewith.

The first point presented for decision is whether the letter from Franklin and Easterling, attorneys, to appellant, dated January 1, 1921, and hereinbefore fully set forth,, was a sufficient compliance with section 3731, Code of 1906 (section 2907, Hemingway’s Code), to discharge the appellee from all further liability as indorsers upon the failure of appellant to commence legal proceedings against the debtor by the next term of court held after the expiration of thirty days from the receipt of the letter.

Section 3731, Code of 1906 (section 2907, Hemingway’s Code), reads as follows:

“Any person bound as surety or accommodation indorser for another, may, at any time after the debt has become due or liability been incurred, give notice in writing to the creditor to commence and prosecute legal proceedings against the principal debtor, if living and resident within this state, for the recovery of the debt; and if the creditor, fail to commence legal proceedings by the next term of the court in which the same shall be instituted, to be held after the expiration of thirty days from the giving of the notice, and to prosecute the same to effect, the surety who shall have given the notice shall be discharged from liability. It shall not be lawful to plead or to give in evidence under this section a notice not in writing, and any act of the creditor shall not be a waiver of notice in writing as herein required.”

It will be noted that only a written notice may be pleaded or given in evidence under this section, and that no act of the creditor shall be deemed a waiver of a notice in writing. If any surety or accommodation indorser intends to invoke this statute to obtain a release from his contract, he must “give notice in writing to the creditor to commence and prosecute legal proceedings against the principal debt- or,” and when the required notice has been given the surety who shall have given the notice shall be discharged from liability unless the creditor shall “commence legal proceedings by the next term of the court in which the same may be instituted to be held after the expiration of thirty days from the giving of the notice,” and shall “prosecute the same to effect.” In the case at bar, we do not think the letter to appellant is such notice as is contemplated by this statute. A notice which will be sufficient to release a surety from a fixed legal liability should be clear and explicit, and should amount to a-demand .that the creditor commence and prosecute legal proceedings against the principal debtor. The alleged notice to appellant is not peremptory in form, and it contains no requirement that the creditor commence and prosecute legal proceedings against the principal debtor, and there is nothing in the letter from which the debtor could reasonably infer that the indorser intended to avail himself of this statute to be released from liability in the event legal proceedings were not begun. On the contrary, appellee denied all liability on the note in the very letter which he now pleads as a notice to appellant to begin legal proceedings or otherwise forfeit all his rights under the contract against the appellee. This alleged notice is merely a suggestion to the creditor that he proceed against the property, and a suggestion that he take the matter up direct with the makers, and that, if he would do so, the matter would probably be satisfactorily adjusted by them.

We have not found, and counsel have not brought to our attention, any ease in which this court has passed upon the sufficiency of a notice under this statute, but the courts of many other states have considered the requisites of a notice that will be sufficient to release a surety under statutes with the same or similar provisions as those of our statute. In Benge’s Adm’r v. Eversole, 156 Ky. 131, 160 S. W. 911, the supreme court of Kentucky said:

“The requisites of a notice that will be sufficient to release a surety are given as follows in 32 Cyc., 104; Notice must be clear and explicit, and not ambiguous; and the burden is on the surety to show its nature and terms. If the statute indicates the terms to be used in the notice, a substantial compliance therewith is essential. The notice must amount to a command; it is not sufficient to express a hope, a wish, or a desire; nor will it be a sufficient compliance for the surety to give a hint; to make a request,; to urge; to suggest; to advise; or to state that the surety refuses to remain liable, or that he will not pay except under compulsion. The notice must be in effect a demand to sue, and be more than instructions to dun the principal.’ ”

In Edmonson v. Potts’ Adm’r, 111 Va. 79, 68 S. E. 254, 21 Ann. Cas. 1365, the supreme court of'Virginia had under consideration a statute of that state Avhich provides that the surety or indorsers may give notice to the creditor “forthAvith to institute suit,” and, if the creditor fails to do so Avithin a reasonable time, his rights against the surety are forfeited, and in that case the court said:

v “Unless the letters relied on as giving notice contained such a requirement to sue, the provisions of section 2890 of the Code were not complied Avith. That section is very stringent in its terms. The effect of failure to institute suit against every party to such contract Avho resides, in this state and is not insolvent, after notice, is an absolute forfeiture of all claims against every surety upon the contract. To the surety giving the notice it is an absolute extinguishment of the debt. Code, chapter 2891. Davis, Adm’r, v. Snead, 33 Gratt, 705, 708, 709. Before the creditor should be held to have forfeited all his rights under the contract against all the sureties for a failure to forthwith institute suit upon the contract, it ought clearly to appear that the notice relied on to have that effect required suit forthwith to be instituted on the note” — citing many authorities.

In Moormann v. Voss, 77 Ohio St. 270, 83 N. E. 76, the supreme court of Ohio had under consideration a similar statute, and after revieAving a number of authorities the court said:

“In Baker v. Kellogg, 29 Ohio St. 665, this court said: ‘In vieAV of the fact that the statute provides for the release of a party from a fixed legal liability — from the payment of a debt Avhich he justly owes — its requirement should be at least substantially, if not strictly and literally complied Avith.’ In Clark v. Osborn, 41 Ohio St. 36, the court, speaking of this statute, says,: ‘The statute, in a sense, is a part of a contract. The suretyship is accepted with knowledge of its terms. It gives rights to both parties. The right of the creditor is to disregard with impunity any notice not in strict conformity to its terms. This is his privilege, and concerns him alone, and is unaffected by considerations of public policy.’ These authorities alone, upon the conceded or undisputed facts, are, we think, decisive of the present case.”

In Brandt on Suretyship, etc. (2d Ed.), section 263, it is said: “A notice to the creditor to sue, which will discharge the surety if not complied with, should be so blear and distinct, that the meaning of the surety can be at once apprehended without explanation or argument.”

And in Bowling v. Chambers, 20 Colo. App. 113, 77 Pac. 16, the court stated the requirements of the notice in the following language: “The request or notice must be clear and explicit, not liable to misapprehension or misunderstanding and must be a positive direction to sue.”

In support of his contention the appellee relies on the case of Iliff v. Weymouth, 40 Ohio St. 101, but we do not think that case is in conflict with the cases herein cited, but, on the contrary, we think it supports the conclusion that we have reached that the notice given by appellee was insufficient. In that case the court- had under consideration a notice reading as follows:

“To Gregory Weymouth: You are hereby required at once to proceed and collect the note you hold dated the 17th of April, 1872, for one hundred and seventy-eight dollars and fifty cents, upon which I am surety, and James Satterfield is principal; that I will stand no longer.

Wesley IUff.”

In passing upon the sufficiency of this notice the court said:

“The notice given by him was peremptory, unconditional and easily understood. It ‘required’ the payee and owner of the note to proceed and collect, and left it not to his option. He was to act without delay — ‘at once’ or forthwith. He was required to ‘proceed,’ or, as the word has been defined, ‘to commence and carry on a legal process.’ When required to' ‘collect,’ the adoption of the commonly known and most effective means of enforcing collection — the commencement of suit — was necessarily implied. The determined language of the surety, ‘I will stand no longer/ taken in connection with the rest of the notice, was suggestive to the creditor that the surety would expect him to resort at once to the best mode of discharging him from liability as surety on the note, to-wit, the commencement of an action forthwith, which would enforce payment o£ the note by the principal debt- or.”

The next contention is that the appellee was released from liability as an indorser by reason of the fact that the appellant, by agreement with the principal debtors, extended the time for the payment of the note, and, consequently, that the peremptory instruction in his favor was correct.

That a person secondarily liable on a promissory note will be discharged by any agreement binding upon the holders to extend the time of payment or to postpone the holder’s right to enforce the instrument, unless made with the assent of the'person secondarily liable, has been held by this court in an unbroken line of decisions beginning in the early judicial history of the state, and this doctrine is crystallized in section 2698 of Hemingway’s Code, which reads as follows:

“A person secondarily liable on the instrument is discharged : . , . By any agreement binding upon the holder to extend the time of payment, or to postpone the holder’s right to enforce the instrument, unless made with the assent of the party secondarily liable, or unless the right of recourse against such party is expressly reserved.”

The nature of an agreement that will operate as a discharge of the person secondarily liable has been repeatedly stated by this court, and in the case of Newell et al. v. Hamer et al., 4 How. 684, 35 Am. Dec. 415, it was said:

“There must be a positive and binding agreement; and for this purpose it must be based upon some new and valuable consideration, which is sufficient to tie up the creditor, and prevent him from asserting any remedy during the time for which the indulgence has been given. This is settled in nearly all the cases which have just been referred to; and has been so decided in every case when the question has been directly presented for the consideration of the court. This interferes with some of the rights of the surety, and cannot prevent him from a resort to any prescribed remedy. He may arrest the indulgence so given by a demand upon the creditor to sue, after which it can be continued only at the risk of the creditor.”

In Johnson v. Planters’ Bank, 4 Smedes & M. 165, 43 Am. Dec. 480, it is said:

“The rule is thus strongly stated by Theobald on Principal and Surety, p. 80: ‘Forbearance or mere passiveness for any length of time, on the part of the creditor towards the debtor, will not discharge the surety, because until required to sue by the surety, the creditor is under no obligation to do sq.’ There must be a contract between the creditor and principal debtor, so as to prevent the surety from having the same remedy against the principal as he might have had upon the original contract.”

In Wadlington v. Gary, 7 Smedes & M. 522, it is said: “There is no doubt but that time was granted to the principal. But mere indulgence does not release'a surety. There must be a valid agreement for indulgence, founded upon a sufficient consideration — such an agreement as can be enforced in a court of justice.”

In Wright v. Watt, 52 Miss. 634, Chief Justice Simrall announced the rule in the following language:

“Indulgence or nonaction, though in the meantime the principal should become insolvent, unaccompanied with any act of the creditor whereby the hazard is increased, will not discharge the surety. . . . But if indulgence is granted for a definite time, pursuant to an agreement supported by a valuable consideration, so as to tie up the hands of the creditor, and the surety does not consent to such an arrangement between the creditor and the principal debtor, he will be exonerated from liability.”

In Miller, Sheriff, et al. v. Lewis, et al., 103 Miss. 598, 60 So. 654, the court, recognizing the same principle, said:

“In the present case, it seems clear that an extension of time was given to the principal for a sufficient consideration, consisting of the execution and delivery of the deed of trust on property, securing the amount of the indebtedness shown in the decree, that this extension was for a definite period, and that, by reason of the execution, delivery, and acceptance of the deed of trust, and the granting of an extension of time for a definite period to the principal, the sureties, the appellees herein, are released and discharged.”

From these cases, as well as many others that might be cited, it is clear that an agreement to extend the time of payment which will release an indorser must be a positive, binding agreement, supported by a new and valuable consideration, and that mere indulgence or forbearance granted to the debtor does not release the surety; or, in other words, in order to effect the release of the surety by an agreement to extend the time of payment, the creditor must so tie his hands under the new agreement as to preclude himself from enforcing the old contract during the period covered by the extension.

In the case at bar, the extension which is relied upon as a release of the indorser is evidenced solely by the letter of the appellant to the principal debtor, which is dated August 27, 1920, and which is hereinbefore set out in full. There is no evidence whatever in this record that any consideration was either promised or paid for this extension, and the burden was upon the appellee to show a positive and binding agreement based upon some new and valuable consideration, which was sufficient to preclude the appellant from enforcing the note during the period covered by the extension. He has failed to meet this burden. We think the letter relied upon merely shows an indulgence to the makers of the note, granted at their request, and without consideration, which the creditor was at liberty to withdraw at will.

In Thompson v. Wynne, 127 Miss. 773, 90 So. 482, this court held: “Where the payee in a note secured by a deed of trust on real estate, as a mere matter of grace, without any new or further consideration, at the request of a payor therein, extends the time of payment beyond the due date of said note, such agreement of extension is not binding on the payee; therefore, notwithstanding same, the payee may proceed to foreclose such deed of trust before the expiration of such extended date of payment.”

It follows from the views herein expressed that it was error to grant the peremptory instruction requested by the appellee, and that the peremptory instruction requested by appellant should have been granted.

Reversed and judgment here for the appellant.