Court Opinion

ID: 5623375
Source: CourtListenerOpinion
Date Created: 2022-01-11 04:44:20.975245+00
Date Added: 2024-06-11T08:37:30.884585
License: Public Domain

Sutton, J.,
dissenting. Under the law of this State, as well as the general law, I can not agree with the majority of the court in holding that the trial court erred in applying the funds realized by the plaintiff bank from an exercise of the power of sale contained in the security deed, by crediting the note sued on in this case with the pro-rata share of such funds as should be credited on the two installment notes for which this note was given as -collateral security for this note.
*609The note sued on in this case was not given for the purpose of taking the place of the two installment notes for $350 and $325, due April 1, 1930, but was'given only as additional security for these two notes. The bank accepted this note with this understanding, and wrote the defendants a letter at the time stating “We will accept the note as security to your April 1 installments for $325 and $350 and extend the time for payment of these items until October 1.” It was at the instance and request of the representative of the bank that the note sued on was executed, and the two sureties, sons of the debtor, indorsed the note with the knowledge aqd understanding that the security deed from W. M. Fulcher to the bank to 1058 acres of land secured his entire indebtedness to the bank. This seems to be conceded by all parties to this case. Counsel for the bank state in their brief: “The installments due April 1, 1930, and for which the note now sued upon was given as additional security, were not paid, nor were the installments that became due October 1, 1930. Because of these defaults, the bank sold the land conveyed to it as security for the loan, under the power of sale contained in the loan deed, on March 3, 1931, and bought it at the sale for $12,000.”
When these installment notes were not paid on October 1, 1930, and the land bank elected to exercise its power of sale in the security deed and foreclosed upon and sold the 1058 acres of land which secured the entire indebtedness of W. M. Fulcher, the defendants were then entitled to have the proceeds derived from the sale of the land applied ratably on all the notes secured by this land. We must bear in mind that the defendant sureties were mere accommodation indorsers on the note sued on, that the note was, in effect, at all times secured by the land embraced in said security deed, executed by the principal debtor to the land bank, and that these sureties knew at the time of their indorsement that the original notes .and particular installments due, which were represented in the note they indorsed, were all secured by land conveyed to the bank.
Every right the law affords sureties will be strictly enforced. Their liability is stricti juris and creditors must be astute not to infringe them. McCarter v. Turner, 49 Ga. 309; McMillan v. Heard National Bank, 19 Ga. App. 148 (91 S. E. 235); Maryland Casualty Co. v. McAlpin, 31 Ga. App. 303 (120 S. E. 644).
In Blount v. Fisher, 31 Ga. App. 687 (121 S. E. 707), this court *610held that "An obligor in an agreement to pay a certain sum of money as representing the debt of another, due the obligee, will be discharged pro tanto upon the obligation in proportion to any reduction made by the payment of the other upon the indebtedness.” In Barrett v. Bass, 105 Ga. 421 (31 S. E. 435), it was held: "Where a creditor by promissory note signed by three persons, two of whom were sureties, having as further security for his debt, a mortgage upon personal property, takes charge of such personalty, the same being sufficient in value to discharge the debt, and fails to appropriate it to the payment of the note, the sureties will be discharged from liability thereon. Especially is this true when the inducement held out to the sureties to undertake the obligation was a statement by the creditor that he had a mortgage upon personalty as additional security.” In Parks v. Savannah Bank & Trust Co., 34 Ga. App. 554 (130 S. E. 365), this court held that "In a suit against the sureties upon the note, where it appeared that a part of the collateral, consisting of promissory notes belonging to the maker, was collected and the proceeds applied by the payee, without consent of the sureties, to an indebtedness due to the payee by the maker on which the sureties were in no wise liable, the sureties were entitled to plead as a payment upon the note sued on the amount of the collateral so applied upon the other indebtedness.” So in Kyle v. Chattahoochee National Bank, 96 Ga. 693 (24 S. E. 149), the Supreme Court of this State held that "Where a promissory note is drawn by one person for the accommodation of another, and such note, together with like papers drawn by other persons to the order of the same payee, and other choses in action upon open account due to the payee, are by him assigned to secure the payment of an indebtedness by him to yet another person, which several items of indebtedness are each before assignment severally secured by a mortgage executed by the payee of such note to such other person, upon the understanding between the mortgagor and mortgagee that the purpose of the mortgage is to save harmless such accommodation maker as well as to secure the mortgagee, the mortgage containing no direction as to the appropriation of the moneys arising from a foreclosure thereunder, and no other direction being given as to how and in what manner such moneys shall be appropriated to such several items of indebtedness, the law will so direct the appropriation to such items of the secured indebtedness as to give the accom*611modation maker the benefit of the security afforded by the mortgage, and, to that end, will apportion the money realized from the foreclosure ratably among the several items secured. Section 2869 of the code [now section 4316 of the Civil Code of 1910] is applicable only in cases of voluntary payments by the debtor.” In that case the court said: “Each of these accommodation makers had a vested interest in all sums which should be realized upon the foreclosure of the mortgage. The mortgage itself was equivalent to an appropriation in advance of the fund;” and further said that “It is a rule of general acceptance and recognized authority, that in all cases where money is raised by judicial process, it shall be appropriated among claims of equal dignity ratably. It would be inequitable and unjust to allow the mortgagee to so appropriate the fund thus realized as to deprive these accommodation makers of the benefit of the security afforded them by the mortgage.” Then again this court, in Citizens & Southern Bank v. Armstrong, 22 Ga. App. 138 (95 S. E. 729), held that “The statutory provision to the effect that when a debtor makes a payment to a creditor holding several demands against him, and fails to direct how it shall be applied, the creditor may at his election appropriate it to any of them, relates to voluntary payments only. Where funds are distributed in judicial proceedings, “’the law will direct the application in such manner as is reasonable and equitable, both as to parties and third persons/ Civil Code (1910), § 4316. . . The court did not err in holding that a dividend paid to the plaintiff in fi. fa. on several demands against the Irish-American Bank, including the execution against the bank as principal and Armstrong as surety, should be applied ratably to all of these demands (and not exclusively upon the other and unsecured demands held by the creditor, at the creditor’s sole option or selection), notwithstanding no election had been made by the principal debtor, and although a surety would not ordinarily be empowered to direct the application of a voluntary payment made to such creditor by his principal or another.” In that case the court said the statute expressly authorizes the application of payments by the court, in the circumstances under review, in such manner as may be equitable both as to parties and third persons, and that at all events the surety was a party in fact as well as in name in the case, in whose behalf the court might direct the application of payments in such a manner as to protect his equitable rights.
*612After foreclosure and sale of the property, it was too late for the bank to direct the application of the funds derived from the sale and its right so to do became lost, and the court could make such application of the funds as would be consistent with equity and justice. Austin v. Southern Home Asso., 122 Ga. 439 (9) (50 S. E. 382).
Many courts have adopted the pro-rata rule of appropriation equally and ratably among all the debts secured by the instrument. The weight of authority is to the effect that the several debts or claims equally secured by the same mortgage are entitled to share ratably in the proceeds of its foreclosure. 42 C. J. 310, § 2012; 19 R. C. L. 656 et seq. As between an indorser and the mortgagee, all the notes being secured by the same mortgage, there is no priority, and the fund derived from a sale on foreclosure should be applied pro rata, where it is not sufficient to pay all. Bridenbecker v. Lewell, 32 Barb. (N Y.) 9. To the same effect see McDermott v. Bank of Tennessee, 9 Humph. (Tenn.) 123. It was held in Fielder v. Varner, 45 Ala. 429, that since all the notes secured by a single mortgage, given to and remaining in the hands of the mortgagee, share equally in the proceeds of the sale of the mortgaged property, without regard to their date of maturity, the accommodation indorser on any one of such notes is, by the sale, released from his liability thereon to the amount to which that particular note is entitled to share in the proceeds. This case was approved and followed in Bostick v. Jacobs, 133 Ala. 344 (32 So. 136, 91 Am. St. R. 36). As between debts for which a surety is bound and those for which he is not, of payments that are not voluntary, but represent the proceeds of legal or judicial proceedings, such proceeds are to be appropriated ratably to all demands to which the proceeds are applicable, and can not be applied exclusively to demands not covered by the surety’s obligation. Willis v. Caldwell, 10 B. Mon. (Ky.) 199; Olds Wagon Works v. Bank of Louisville, 10 Ky. L. 235; Blackstone Bank v. Hill, 10 Pick. (Mass.) 129. In Orleans County Nat. Bank v. Moore, 112 N. Y. 543 (20 N. E. 357, 3 L. R. A. 302, 8 Am. St. R. 775), it was held that the proceeds of a mortgage securing notes with different sureties are to be applied pro rata, and that the mortgagee can not control their application. In that case the court said that to hold otherwise would leave out of view entirely all rights or equities of *613the surety, and that “The law has always regarded a surety as having some rights in the security, though furnished directly by the debtor to the creditor. The security having been furnished by the debtor, the creditor must dispose of it upon equitable principles.” In St. Louis &c. R. Co. v. Ravia Granite Ballast Co., 70 Okla. 273 (174 Pac. 252), it was held that “Payments, in the absence of application by the debtor or creditor, will by law be applied as a credit upon debts due, and if some are secured and others unsecured the same will be applied upon the unsecured claims unless the payment is derived from a secured source, that is, by the sale of the mortgaged property, in which event the same will be applied on the claims secured by the mortgage.” In Exchange Bank v. McDill, 56 S. C. 565 (35 S. E. 260), it was held that “The law implies a contract by the creditor that the surety shall have the benefit of all securities or collaterals of the principal debtor held by the creditor for the enforcement of the debt for which the surety is liable.” There are many other respectable authorities which might be referred to that sustain the doctrine of applying the proceeds derived from the sale of mortgaged property ratably, but which for the sake of brevity will not be set forth herein.
The case of Horne v. Planters Bank, 32 Ga. 1, is not authority to support the majority holding in this case. In that case the ruling was that “When there are several items of indebtedness, the debtor has the right to make the application of payment; and failing to do so, the right devolves upon the creditor to appropriate the payments.” That was the law then and is the law today, being in substance the first part of section 4316 of the Civil Code of 1910. I do not take issue with the quotation from the Supreme Court of the United States, given in 32 Ga., that “When a debtor fails to avail himself of the power which he possesses, in consequence of which that power devolves upon the creditor, it does not appear unreasonable to suppose that he is content with the manner in which the creditor will exercise it. It being equitable that the whole debt should be paid, it can not be inequitable to extinguish first those debts for which the security is most precarious.” This is sound law, but applies only in cases of voluntary payments. However, in the instant case, and in the authorities above referred to in this dissent, the payments were not voluntary ones, but involuntary payments, and as to them, as we have seen, the above rule laid down *614by the Supreme Court of the United States is not applicable. Where it devolves upon the court to apply the payments, or the payment is the money realized from a sale of the mortgaged property, the same are applied ratably, and, as stated in the code, “in such manner as is reasonable and equitable, both as to parties and third persons.” It is true that after quoting the above language from the Supreme Court of the United States, the writer of the opinion in 32 Ga. said: “And this is, we think, the weight of authority in this country, and the courts have gone so far as to hold, that a security, or accommodation endorser, can not be relieved at the expense of the creditor. To furnish a key to the cases upon this interesting subject, I would cite the following.” Then follows citation of some foreign authorities. The above was not a ruling of the court, but only a statement of the writer’s opinion as to how far the courts of other States had gone. However, as we have seen, by the great weight of authority, that statement was not entirely correct. The most strained construction that could be placed upon the language, “the courts have gone so far as to hold that a security, or accommodation endorser, can not be relieved at the expense of the creditor,” would not make it a holding that an accommodation indorser on a note secured by a mortgage, which also secured other indebtedness of the mortgagor, would not be, upon a sale of the mortgaged premises, released from liability thereon to the extent to which the note indorsed by him is entitled to share in the proceeds of such sale. Neither is the decision of this court in High Co. v. Arrington, 45 Ga. App. 392 (165 S. E. 151), any authority for the ruling of the majority in the instant case. In that case it does not appear that the payments were derived from the sale of mortgaged property, nor does it appear that the payments were involuntary, nor does it appear that the rights of sureties were involved.
For the above reasons, I can not agree with the majority ruling, and must dissent therefrom.