126 S.W.2d 412 | Ky. Ct. App. | 1938
Reversing.
On January 15, 1926, Scott Thompson and his mother, Mrs. Martha S. Thompson, executed their joint note for $15,000 to the State National Bank of Frankfort. As security they pledged 45 shares of stock of the J. B. Blanton Company, a local corporation. Mrs. Thompson owned 30 and Mr. Thompson 15 of these shares. As further security Mrs. Thompson mortgaged her residence. Mrs. Dorothy M. Thompson, the wife of *529 Scott Thompson, did not sign the note, but for the same purpose she and her husband executed a mortgage on their home to which she held title. A few days before the note became due, six months later, Mrs. Martha S. Thompson died. Scott Thompson qualified as her administrator with will annexed. Under the mistaken conception that he had authority to do so, the renewal of the note was signed by Scott Thompson as "Executor of Martha S. Thompson's estate," as well as by himself, individually. The original note was marked "paid" and surrendered to him. Thereafter he similarly executed many successive renewal notes. He repaid the interest, and in October, 1929, paid $250 of the principal. These transactions continued until October 7, 1933, when the bank brought this suit on the indebtedness against Scott Thompson, individually, and as personal representative of the estate of his mother, and Mrs. Dorothy M. Thompson; also Mrs. Martha Jane Gillispie, the daughter of the deceased, to whom her residence property, which had been mortgaged to secure the debt, was devised. In February, 1927, at the request of Scott Thompson and his brother, Robert Thompson, the bank released 10 shares of the corporate stock pledged as collateral to Robert Thompson. As we understand this was regarded as his portion of the stock bequeathed him by his mother. Robert Thompson was guardian of his sister, Mrs. Gillispie. Whether she was present when the stock was given up and joined in the request is a disputed but unimportant question. She was an unmarried infant at that time. The surrender of this stock was without the knowledge or consent of Mrs. Dorothy M. Thompson. It was then considered worth $5,000 to $8,000.
The circuit court was of opinion that both Mrs. Martha S. Thompson and Mrs. Dorothy M. Thompson were only sureties and the bank, by its relinquishment of the pledged 10 shares of stock, had released the estate of the former and the lien on her property, as well as released the lien on Mrs. Dorothy M. Thompson's property. A personal judgment was rendered against Scott Thompson for the debt and subjected 15 shares of the stock, which he had originally owned, and 10 shares bequeathed to him by his mother, to its satisfaction, the same being ordered sold. He had made no personal defense. On her counterclaim the court adjudged that the bank restore 10 shares of the stock, with all accumulated *530 dividends, to Mrs. Martha Jane Gillispie as the devisee of her mother. The bank appeals. Mrs. Gillispie has since died but there has been a revivor against her executor.
Mr. Thompson, as the personal representative, had no power to bind his mother's estate by signing the renewal notes as surety, although it may have been in its interest and for its benefit. Daviess County Bank Trust Co. v. Wright,
The editor of the annotations in 12 A.L.R. 1546, thus clearly states the rule:
"In the absence of an agreement to the contrary, the acceptance of a renewal note made or endorsed by a personal representative of the obligor in the original paper is generally held not to be a payment or novation of that paper."
Our cases so hold. Bank of America v. McNeil, 10 Bush 54; Russell v. Centers,
The cause of action stated in the petition was construed by the circuit court as being upon the original note although the last renewal was set up. We shall decide the case accordingly.
Of the proceeds of the note, $10,432.91 was applied *531
to the payment of obligations of Scott Thompson to another bank on which his mother was surety, and to secure which the 45 shares of stock had 'been pledged. It appears that $2,500 of that debt had been incurred by Scott Thompson to pay off a lien on the property of his wife, Mrs. Dorothy M. Thompson. For this reason the appellant maintains that she should not be regarded as a surety but should be held as having obtained the benefit of the proceeds of the note sued on, and, therefore, bound as principal, as was the wife in Thomas v. Boston Banking Co.,
Being an unmarried woman, Mrs. Martha S. Thompson was not incapacitated from signing the note or otherwise becoming personal surety for the son. There is no doubt of her status as such. As to the wife, Mrs. Dorothy M. Thompson, there is doubt; but we think the chancellor rightly concluded that she was not a principal. As a married woman, she could not enter into a contract of personal suretyship, but, having mortgaged her property for her husband's debt, she occupies the position of a surety in respect thereto. Lane v. Traders' Deposit Bank, 21 S.W. 756, 14 Ky. Law Rep. 873; Tipton v. Traders' Deposit Bank, 33 S.W. 205, 17 Ky. Law Rep. 960. She is entitled to all the rights of such an obligor and to have the lien which she placed upon her property discharged by any change in the suretyship transaction which would operate as a discharge of a personal surety. Daviess County Bank Trust Co. v. Wright, supra; 21 Rawle C. L. 1003. But Mrs. Thompson was not discharged by the renewals and extensions. By its express terms the note embraced all renewals. People's State Bank v. Atwood,
The relinquishment of the 10 shares of the pledged stock raises difficult questions.
As has been stated, the mother owned 30 shares of the stock. She had bequeathed 10 of those shares to each of her three children. The circuit court seems to have concluded that the stock surrendered to Robert *532 Thompson then belonged to his sister, Mrs. Gillispie, as her bequest. It seems to us, however, that as the mother had pledged all of her stock, the rights and responsibility of the children could not be different from hers had she survived. The personal representative had no right to consent, as he did, to the surrender and the delivery of the stock to Robert Thompson. Nor did the bank have such right. Accordingly, the surrender of a portion of that stock without the consent of one of the three owners should be regarded as a wrongful surrender of that owner's proportionate part. As Mrs. Gillispie owned one-third of the 10 shares so surrendered, the bank is liable to her for one-third of its value at the time of its surrender and no more, subject, however, to its being applied in satisfaction of the obligation of the mother's estate to the bank. The bequest to her, obviously, was encumbered by the pledge.
The next question is the effect of the relinquishment of the stock upon the liability of the estate of the mother by reason of her suretyship and her property and the liability of the property of the wife, Mrs. Dorothy M. Thompson, placed in lien as security. This court first adopted the majority interpretation or rule as to the effect of the Negotiable Instruments Act, Kentucky Statutes, section 3720b-1 et seq., on the equitable defense of release of a surety by extension of time of payment by the payee or by his voluntary surrender of collateral pledged to secure the note, namely, that there is not an entire discharge. First State Bank of Nortonville v. Williams,
We are of opinion that the release of the 10 shares of pledged stock operated to release the estate of Mrs. Martha S. Thompson and the property of Mrs. Dorothy M. Thompson only in proportion that its value bears to the entire value of all the stock and the real estate placed in lien and no more.
The judgment is reversed.
Whole court sitting, except Judge Rees.
