Opinion ID: 1740629
Heading Depth: 2
Heading Rank: 2

Heading: did the lower court err in striking the affirmative defenses of the appellants?

Text: Stated differently, these assignments present the question of whether or not North Mississippi had the right to sue and recover in a court of law on the promissory note, without first proceeding to a foreclosure of the deed of trust. We are of the opinion that North Mississippi had the unconditional right to choose its forum for suit and to institute suit on the note alone for its collection, without resort to the deed of trust or foreclosure thereon. In 55 Am.Jur.2d Mortgages § 541 (1971), the general law is stated as follows: While there is some authority for the view, and statutes to the effect, that an independent action on the mortgage debt or note is a bar to a subsequent foreclosure, and that a foreclosure is a bar to an action of law on the debt, the general rule, in the absence of a statute to the contrary, is that a creditor whose debt is secured by mortgage may pursue his remedy in personam for the debt, or his remedy in rem to subject the mortgaged property to its payment. In Rea v. O'Bannon, 171 Miss. 824, 158 So. 916 (1935), the Court discussed the right of a promissory note holder to elect his remedy and stated: There is no inconsistency in the two remedies here available to Rea, receiver. He could pursue the foreclosure to conclusion, or, if he deemed it advantageous to himself, he could forego the foreclosure and proceed at law to collect his debt in the law forum... . There is no inconsistency between the legal and equitable remedial rights possessed by a mortgagee in case of a breach, and he may exercise them all at the same time, and resort to one is not a waiver of the other. 171 Miss. at 832, 158 So. at 918. See also Ramon v. Mitchell, 227 Miss. 360, 86 So.2d 315 (1956) and Cooper v. Mississippi Land Company, 220 So.2d 302 (Miss. 1969). In Cooper, the Court cited Rea v. O'Bannon, supra , and held that the payees of corporate notes could sue on the note without resorting to the security of a deed of trust, and that the holder of the note had the right to forego use of the burdensome collateral. This Court approved their right to sue directly on the promissory note. Since the appellee had the right to file and proceed with his suit on the promissory note in the Circuit Court of Lafayette County, it follows that the lower court did not err in declining to transfer the cause to the chancery court and in striking the equitable defenses filed by the appellants.
Under Assignments I and II, appellants urge that they were entitled to rely upon the equitable defense of impairment of collateral. Appellants cite no authority on facts comparable to this case in support of such a position. Huey v. Port Gibson Bank, 390 So.2d 1005 (Miss. 1980) and Hughes v. Taylor, 485 So.2d 1026 (Miss. 1986), have been brought to our attention as authority on impairment of collateral in the case sub judice. Neither case is applicable here. Huey v. Port Gibson Bank, supra , involved a note executed in favor of Port Gibson Bank with collateral consisting of a security agreement on inventory, furniture and appliances. The bank failed to file a financing statement with the Secretary of State, which amounted to an unjustifiable impairment of collateral, thereby relieving the endorser of his obligation on the loan to the extent of collateral impaired. That case is distinguished from the case sub judice. In Hughes v. Tyler, supra , collateral for the indebtedness was 1,256 acres of land. Without setting out the details, holder of the note, Hughes, executed a subordination releasing 776 acres of land and there was a substantial impairment of the collateral to Tyler, the debtor. Hughes is not similar to the present case. On the other hand, in Kane v. Citizens Fidelity Bank & Trust, 668 S.W.2d 564 (Ky.App. 1984), the Court of Appeals of Kentucky held that there was no duty on the creditor to preserve collateral which was not in its possession, citing Commercial Credit Equipment Corp. v. Hatton, 429 F. Supp. 997 (N.D.Tex. 1977), at 1001, as follows: [T]he imposition of such a duty flies in the face of commercial realities... . In addition to the practical problems involved in such a system, it would not appear to be sound public policy to encourage creditors and sureties to follow debtors about to insure that the value of collateral in their possession is not deteriorating. To the extent that a surety feels insecure and believes a debtor is in default, he is always entitled to pay off the indebtedness, be subrotated to the right of the creditor, and then repossess.... In Federal Deposit Insurance Corp. v. Kirkland, 251 S.E.2d 750 (1979), the Supreme Court of South Carolina said: As an additional sustaining ground, respondent contends that Code Section 36-3-606(1)(b) relieves him from liability. This section states that the holder discharges any party to the instrument to the extent the holder unjustifiably impairs any collateral for the instrument. Basically, respondent contends that collateral was impaired due to vandalism on the mortgaged property and a general decline in real estate values in the area. The referee correctly held that any damage from vandalism or deterioration in values did not result from any act of appellant and, therefore, it was not responsible therefor. 251 S.E.2d at 752. See also Commercial Credit Equipment Corp. v. Hatton, supra . We do not interpret Mississippi Code Annotated § 75-3-606 (1972), which deals with impairment of collateral, to impose a duty upon the mortgagee, in a mortgage covering real estate collateral, who is not even in possession of the real estate, to look after, care for, maintain and upkeep same. If that duty were imposed, it would be to the interest of the creditor not to take such collateral as security, but only rely upon makers, endorsers and sureties who, without doubt, were worth the amount of the note. American Bank of Commerce v. Covolo, 88 N.M. 405, 540 P.2d 1294 (1975), holds that a bank does not owe a fiduciary duty to its debtors and obligors under the UCC. What a chilling effect such a duty would have on business. It would be prohibitive for lenders, even within the state, to keep up with, inspect, and maintain the collateral. It would hardly be feasible for lending institutions within this state to purchase notes secured by real estate mortgages in other states because of the cost, hardship and impossibility to inspect and maintain the collateral. Banks and individuals frequently loan money on promissory notes with endorsers, and, incidental to the note, take a mortgage on real property and without an inspection or title certificate. They could have problems if the impairment of collateral argument of appellants were adopted.