Court Opinion

ID: 6679814
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:19:45.511273+00
Date Added: 2024-06-11T16:00:48.733192
License: Public Domain

The opinion of the Court was delivered by
Mr. Justice Jones.
The mortgage sought to> be foreclosed in this action was executed May 12, 1893, by McDill *573to secure a note made September 25 th, 1891, for $2,000 to the Exchange Bank 'by J. W. P. Hope & Co. and J. N. Mc-Dill, the latter being surety. The note had been given in substitution for a bond previously executed by the parties, which was conditioned “to- pay the full amount of any overdrafts that Hope & Co. may make upon their accounts as kept at said Exchange Bank during the cotton season just opening, as soon as the balance is properly struck and demand for payment is made.” The Circuit Court concurring with the referee in his conclusions of law and fact, dismissed the complaint, on the ground that by a proper application of the assets or money of the principal debtor in the hands of the bank, there was no. real overdraft for which the surety, McDill, was. liable. Reference may be had to> the decree of the Circuit Court and appellants exceptions, thereto, for a more detailed statement of the conclusions of the Circuit Court and the objections thereto..
We overrule the exceptions made and affirm the decree below. While little can be added in vindication of the decree, we will venture a few observations. The bank kept a “cotton account” for the season involved, and the books of the bank show on their face overdraft by Hope & Co. to the amount of $4,188.06. This, was brought about, however, by debiting Hope & Cods account with $8,150, the amount of drafts by Hope & 'Co. on Hubbard, Price & Co. in reference to. the cotton business, which had been deposited with the bank for collection, but had been dishonored by Hubbard, Price & Co. These drafts represented; the proceeds of cotton shipped by Hope & Co. to- Hubbard, Price & Co. during that season. They were retained in the possession of the bank, and, though dishonored, with whatever liability attached thereon against Hubbard, Price & Co., became securities of the principal debtor in the hands of the creditor applicable to the cotton account for which the surety was liable. In a suit against Hubbard, Price & Co. based on these- drafts, the bank recovered the full amount of the drafts, with interest, and after deducting all expenses, the balance- is more *574than sufficient to> cover the alleged overdraft. The bank, however, claims the right, in the absence of any direction by the debtor, to- apply the proceeds of these overdrafts to- another -obligation of Hope & 'Co. with which the surety, Mc-Dill, is not concerned, leaving only a balance of. $1,297.60, which was applied by the bank to- the cotton account. W-e think it -clear that the -surety has an enforceable equity requiring the proceeds of these drafts to be- first applied in- exoneration of his -liability. The liability -o-f Hubbard, Price & C:o. in reference to the cotton transactions between- Ho-pe & Co. and the bank, based on the dishonored drafts, was a security of the principal debtor in the hand's- of the creditor, appertaining to- the debt for which the surety was liable, and the proceeds -could -not be diverted to the injury of the surety without ‘his consent or waiver. W-e find nothing in the case to warrant a conclusion that the surety has ever consented to-such application, o-r that h-e has -ever waived his right to- be exonerated by the recovery against Hubbard, Price & Co-. That the drafts against Hubbard, Price & Co-, in fact belonged- to- and were a part of the “cotton account” of Hope & Co. with the bank is -clearly shown by the bank’s own action in -entering them on their books in said account, in the suit to- recover thereon against Hubbard, Price & -Co., and in the congratulations by the bank liquidator to- the surety after the recovery on the sureties’ release- by reason of the- recovery. These claims against Hu-bb-ard, Price & Co-, being factors in the “cotton account,” they must be considered in determining whether there was in fact any real overdraft on said account. There was in fact no- real, permanent overdraft to the loss- o-f the bank, for the bank was fully indemnified by the recovery again-st Hubbard, Price & Co-. Had the drafts against Hubbard, Price & -Co-, been promptly paid, no one -wo-uld contend1 that the bank could have diverted- the proceeds to a different obligation o-f Hope & -Co. to the prejudice of the surety, and we -cannot see -how the bank, without the surety’s consent, can acquire a right to a different application- merely because the payment w-as delayed and *575had to be enforced. This case is easily distinguished from Pelzer, Rodgers & Co. v. Steadman, 22 S. C., 284, which is relied on by appellants. In that case the creditor was allowed to apply to an old debt of the principal debtor the proceeds of cotton shipped to the creditor by the principal debtor, instead of applying the same to the contract for- advances for which the surety was liable. The contract of the surety, as construed by the Court in that case, was to pay $2,000, with interest and commissions, by November x, 1881, and also that the principal would ship all cotton to Pelzer, Rodgers & 'Co., not for the payment of the $2,000, not as additional and collateral security thereto, but to- sell on commission. 'So the Court held there was- no appropriation of the cotton to' the advance of $2,000 secured by the mortgage of the surety, concluding in this language: “Hence, in plaintiffs failing to- thus apply it (the cotton to the advances), it cannot be said that they have changed, altered or modified the contract, or that they have diverted to other purposes securities or collateral deposited or pledged by the debtor for its enforcement, to the injury of the surety, or that they 'have violated any other recognized equity of the surety.” The law implies a contract by the' creditor that the surety shall have the benefit of all securities or collateral of the principal debtor held1 by the creditor for the enforcement of the debt for which -the -surety is liable, and in thl-s case the creditor is seeking to- divert to other purposes securities of the principal debtor pledged for the discharge of the debt sought now to- be enforced against the surety.
The judgment of the Circuit Court is affirmed.