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WEST POINT CORPORATION, ET AL. v. NEW NORTH MISSISSIPPI FEDERAL SAVINGS & LOAN ASSOCIATION

NOVEMBER 26, 1986

WEST POINT CORPORATION, ET AL.
v.
NEW NORTH MISSISSIPPI FEDERAL SAVINGS & LOAN ASSOCIATION



EN BANC.

ROY NOBLE LEE, PRESIDING JUSTICE, FOR THE COURT:

North Mississippi Savings & Loan Association (North Mississippi) filed its declaration in the Circuit Court of Lafayette County, against the West Point Corporation (West Point), John R. Young (Young), Gorden E. Brent (Brent), Woodford S. Lovejoy (Lovejoy), W. C. and Laura E. Hudson (Hudsons), and other parties seeking collection of a defaulted promissory note in the original amount of one hundred ninety-six thousand dollars ($196,000). At the conclusion of all the evidence, the lower court granted a directed verdict in favor of North Mississippi in the amount of one hundred thirty-nine thousand five hundred fifty-three dollars forty-six cents ($139,553.46), with interest at the rate of nine percent (9%) per annum, together with attorney's fees. The total amount of the judgment was one hundred sixty-three thousand six hundred ninety-two dollars sixty-seven cents ($163,692.67). West Point Corporation, Lovejoy, Young, Brent, and Hudsons have appealed to this Court from that judgment.

Facts

 On November 10, 1972, West Point executed a promissory note in the principal sum of one hundred ninty-six thousand dollars ($196,000) to North Mississippi, together with interest and attorney's fees. The monthly installments of nineteen hundred eighty-eight dollars five cent ($1,988.05) began on December 1, 1972, and were payable seriatim with the last payment being due November 1, 1987. As to Lovejoy, Young and Brent, the note contained the following condition and guaranty:

 As a condition of the Corporate obligation evidenced by this Promissory Note, the undersigned individuals, in order to induce the lendor to

 advance the funds evidenced hereby, have agreed to and do hereby execute this Note as personal sureties for the prompt payment of this indebtedness by the Corporate obligor; with payment guaranteed, with the provision, however, that the responsibility of the undersigned personal sureties is limited to the principal obligation plus such lawful interest thereon as may be permitted to be charged to individuals under the laws of the State of Mississippi.

 * * *

 PAYMENT GUARANTEED:

 /s/ WOODFORD S. LOVEJOY ------------------------

 WOODFORD S. LOVEJOY

 /s/ JOHN R. YOUNG ------------------------

 JOHN R. YOUNG

 /s/ GORDON R. BRENT ------------------------

 GORDON R. BRENT

 The note was secured by a deed of trust on a motel and motel property. Subsequently, the note and deed of trust were transferred to, and payment thereof was assumed by, other parties who are not involved in this appeal.

 The appellants filed answers and set up numerous equitable affirmative defenses, and moved the court to transfer the cause to the Chancery Court of Lafayette County in order that those defenses could be presented. The lower court held that the Circuit Court properly had jurisdiction of the cause and denied the motion to transfer to the chancery court. At the conclusion of the evidence, the lower court entered judgment in favor of North Mississippi.

 Questions

 I. DID THE LOWER COURT ERR IN OVERRULING THE MOTION OF APPELLANTS TO TRANSFER THE CAUSE TO THE CHANCERY COURT?

 II. DID THE LOWER COURT ERR IN STRIKING THE AFFIRMATIVE DEFENSES OF THE APPELLANTS?

 A.

 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 320 (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.

 B.

 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 (S.C. 1979), the Supreme ...


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