IN THE SUPREME COURT OF MISSISSIPPI
NO. 94-CT-00231-SCT
HARRY A. STEWART, SR. AND BETTY D. STEWART
v.
MERCHANTS NATIONAL BANK, VICKSBURG,
MISSISSIPPI
CONSOLIDATED WITH
90-CA-00410-SCT
MERCHANTS NATIONAL BANK, VICKSBURG,
MISSISSIPPI
v.
HARRY A. STEWART, SR. AND BETTY D. STEWART
ON PETITION FOR WRIT OF CERTIORARI
DATE OF JUDGMENT: 12/10/93
TRIAL JUDGE: HON. RAY HILLMAN MONTGOMERY
COURT FROM WHICH APPEALED: MADISON COUNTY CHANCERY COURT
FOR APPELLANTS: JOHN W. CHRISTOPHER
FOR APPELLEE: JOHN C. WHEELESS, JR.
KENNETH B. RECTOR
DONALD A. MCGRAW, JR.
NATURE OF THE CASE: CIVIL - REAL PROPERTY
DISPOSITION: REVERSED - 5/29/97
MOTION FOR REHEARING FILED: 6/12/97
MANDATE ISSUED: 8/29/97
EN BANC.
SMITH, JUSTICE, FOR THE COURT:
¶1. This matter comes before the Court, sitting en banc, after having granted Merchants National
Banks's (Merchants) petition for writ of certiorari. The Chancery Court of Madison County, sitting
without a jury, entered an order of dismissal for Merchants at the conclusion of Harry A. Stewart,
Sr., and Betty D. Stewart's (Stewarts) case in chief. On appeal, the Court of Appeals applied the
standard of review applicable to a directed verdict and viewed the evidence in the light most
favorable to the plaintiffs, giving the plaintiff the benefit of all reasonable favorable inferences, and
reversed the chancellor's order of dismissal. We find that the Court of Appeals erred in reversing the
judgment of the chancellor. Accordingly, we reverse and reinstate the judgment of the chancellor.
STATEMENT OF THE CASE:
¶2. This case began when Harry Stewart and Betty Stewart, owners and farmers of approximately
900 acres of land in Madison County, Mississippi, experienced several bad crop years and mounting
debt and Merchants National Bank, their primary financier, notified them that it could no longer carry
their debt. The Stewarts and Merchants agreed that the farm should be sold. Thereafter the Stewarts
divided the farm in half and initiated the process of selling it to their son and son-in-law, Stewart, Jr.,
and Ellis, respectively. As part of the agreement between Merchants and the Stewarts, Merchant
assisted Stewart, Jr., and Ellis in securing a ninety percent guaranteed Farmers Home Administration
Loan for the purchase of the farm and farm equipment.(1)
¶3. On May 23, 1983, the Stewarts sold the farm to Stewart, Jr., and Ellis, who each executed
promissory notes in the amount of $ 170,000 in favor of the Stewarts, as the balance of the purchase
price. Each note was secured by a first deed of trust and lien against each purchaser's half of the farm.
Additionally, Stewart, Jr. and Ellis each borrowed the sum of $ 500,000 from Merchants to pay the
balance of the purchase price of the farm and farming equipment. This debt for each buyer, was
evidenced by a note in the amount of $200,000 and one in the sum of $300,000. These notes were
secured by a second deed of trust in favor of Merchants. Also, pursuant to the lender's agreements,
the repayment of these notes totaling one million dollars was ninety percent guaranteed by the
FmHA. Additionally, on the same date, Stewart, Jr. and Ellis each executed $ 170,000 unsecured
promissory notes to the bank as security for crop production and equipment loans. The Stewarts
agreed to guarantee, through the execution of Hypothecation Agreements, the repayment of this
indebtedness to the bank. As collateral, they assigned their first deeds of trust from Stewart, Jr. and
Ellis, each in the amount of $ 170,000 to Merchants.
¶4. After the 1983 crop season, all of the loans were in a state of default and Merchants made a
demand on Stewart, Jr., and Ellis for the payment of the loans. After the demands for payment were
not made, the bank began the process of foreclosing on the real property and repossessing the
equipment.
¶5. After two attempts at foreclosure, the first initiated by the Stewarts and the second by Merchants,
the parties entered into an Agreed Order of Dismissal, on July 27, 1984. As part of the agreed order,
the court ordered that the Stewarts be given $34,200 upon the entry of the order as an advancement
of their equitable interest in the first deeds of trust; that Merchants advance an additional $34,200 to
the Stewarts on the day of the subsequent foreclosure sale; that the Stewarts reserved the right to
litigate over a remaining amount of equity of $152,000 in the deeds of trust; and that Merchants
foreclose on the first deeds of trust executed by Stewart, Jr., and Ellis to the Stewarts and assigned
by Stewarts to Merchants.
¶6. In the Spring of 1985, Merchants foreclosed on the second deeds of trust on the property. The
successful foreclosure bid by Merchants was $780,000. The Stewarts received the second installment
of the equity advance ordered by the court. After that foreclosure, the Stewarts filed a complaint
indicating that Merchants had not complied with the "Agreed Order of Dismissal."
¶7. The chancery court held Merchants in contempt for failing to foreclose on the first deeds of trust
owned by the Stewarts pursuant to the agreed court order and Merchants was assessed a $100 per
day penalty for future noncompliance. Merchants appealed to this Court.
¶8. As indicated above, the first appeal was initiated by Merchants after the Chancery Court of
Madison County found Merchants in contempt for failing to abide by the agreed court order. This
case decided by the Court on March 16, 1988, is cited as Merchants National Bank v. Stewart, 523
So. 2d 961 (Miss. 1988). We affirmed the judgment of the Chancery Court of Madison County in all
but one respect. We found that Merchants would only be liable for the $100 per day penalty if it
failed to commence foreclosure proceedings on or before the tenth day following issuance of the
mandate.
¶9. After this Court's decision was rendered on March 16, 1988, the Stewarts' deeds of trust were
foreclosed and the $610,000 proceeds from the foreclosure sale were interpleaded.
¶10. In his November 8, 1988, Order Granting Interpleader, the chancellor ordered the parties to file
their respective claims, counterclaims, defenses, offsets, credits, or other appropriate pleading within
thirty days of the date of the entry of the order setting forth their respective alleged rights, claims,
and counterclaims.
¶11. On January 25, 1989, the Stewarts filed their Answer and Claims of Harry A. Stewart and Betty
Stewart to Complaint for Interpleader. The Stewarts requested ten million dollars in actual damages
and thirty million dollars in punitive damages, along with attorneys' fees and rental fees. On August
15, 1989, the Stewarts filed a Motion for Bifurcated Trial wherein they asked the court to hear
separately those matters pertaining to the rights, duties and liabilities of the respective parties and to
subsequently hear those matters pertaining to actual damages and punitive damages. On August 15,
1989, the chancellor entered an Agreed Order for Bifurcated Trial.
¶12. After the parties presented their respective evidence on those matters pertaining to the rights,
duties and liabilities of the parties, the chancery court rendered its opinion, wherein it held that the
Stewarts were entitled to all proceeds of the July 15, 1988, foreclosure sale, less the costs of the
foreclosure sale. The Stewarts were awarded $603,000.
¶13. Aggrieved by the chancellor's decision to award the Stewarts all of the proceeds from the
foreclosure sale, Merchants filed its Notice of Appeal with this Court on April 11, 1990.
¶14. The second decision rendered by this Court was entered on April 1, 1992, as modified on denial
of rehearing November 19, 1992, and is cited as Merchants National Bank v. Stewart, 608 So. 2d
1120 (Miss. 1992). In that case, the Court reversed the judgment of the Chancery Court of Madison
County's findings that the Stewarts were entitled to all of the proceeds of the foreclosure sale. The
Court concluded that Merchants was entitled to $362,927.31, and that the Stewarts were entitled to
the balance. Additionally, the Court ordered that the interest accrued on the proceeds be divided, on
a pro rata basis, between the Stewarts and Merchants. On remand, the chancery court was ordered to
disburse the proceeds and accrued interests.
¶15. On January 25, 1993, the chancellor entered a Judgment for Distribution of Foreclosure
Proceeds and Accrued Interest. The Stewarts received $281,103.33, which constituted their pro rata
share plus accrued interest on the foreclosure proceeds.
¶16. An Agreed Order for Bifurcated Trial was entered on August 15, 1989. The chancellor set
November 29, 1993, as the trial date for the damages portion of the trial. On November 18, 1993,
Merchants filed its Answer and Response of Merchants National Bank to Answer and Claims of
Harry A. Stewart and Betty Stewart to Complaint for Interpleader. Merchants asserted that the relief
to which the Stewarts were entitled had already been granted; that all of the issues were litigated and
decided in the court's final judgment of January 27, 1986, and that all other matters, which could
properly have been raised and determined therein, had been. Merchants affirmatively pled the defense
of res judicata.
¶17. The trial on damages commenced on November 29, 1993. During their case-in-chief, the
Stewarts alleged that Merchants' failure to foreclose on the first deed of trust, and its subsequent
citation for contempt evidenced that Merchants acted in bad faith. At the conclusion of the Stewarts'
case, the chancellor sustained Merchants' Motion to Dismiss.
¶18. Aggrieved that the lower court sustained the motion to dismiss, the Stewarts filed an appeal to
this Court and the case was assigned to the Court of Appeals. The majority of the Court of Appeals
determined that based on the standard of review for a directed verdict, the evidence could have
supported a verdict for the Stewarts' damages claim, and that the directed verdict should not have
been granted. The Court of Appeals reversed the judgment of the chancery court and ordered a new
trial. It is from that decision that we granted Merchants' petition for a writ of certiorari.
Analysis
A.
Standard of Review
¶19. The standard of review applicable on motion to dismiss under Rule 41(b) is different that
applicable to a motion for a directed verdict. Century 21 Deep S. Properties, LTD. v. Corson, 612
So. 2d 359 (Miss. 1992); Real Estate Comm'n v. Geico Fin. Serv., 602 So. 2d 1155 (Miss. 1992);
Mitchell v. Rawls, 493 So. 2d at 362-63; Davis v. Clement, 468 So. 2d 58, 61-62 (Miss. 1985). In
considering a motion to dismiss, the judge should consider "the evidence fairly, as distinguished from
in the light most favorable to the plaintiff," and the judge should dismiss the case if it would find for
the defendant. Corson, 612 So. 2d at 369 (emphasis added). "The court must deny a motion to
dismiss only if the judge would be obliged to find for the plaintiff if the plaintiff's evidence were all
the evidence offered in the case." Id. (citations omitted). "This Court applies the substantial
evidence/manifest error standards to an appeal of a grant or denial of a motion to dismiss pursuant to
M.R.C.P. 41(b)." Id. (citations omitted).
B.
¶20. Merchants contends that the Court of Appeals applied an incorrect standard of review of the
lower court's decision in that the Court of Appeals applied the standard of review applicable to the
granting of a directed verdict in a jury case, rather than the standard of review applicable to a case
before the trial judge sitting without a jury. Merchants explains that since this was a non-jury trial, the
chancery court properly granted a dismissal on the merits pursuant to M.R.C.P. 41(b), and not a
directed verdict under M.R.C.P. 50.
¶21. A review of the proceedings below indicates that at the close of the Stewarts' case, Merchants
moved for a dismissal of the case. After the parties' argument on the motion to dismiss, the chancellor
stated:
The Court is of the opinion based upon the evidence and the testimony presented that the
Motion to Dismiss is well taken and is hereby sustained, based primarily on the testimony of the
Plaintiff, Harry A. Stewart, Sr., on direct examination when asked, "When did his financial
problems begin," and his answer was: "When he guaranteed the loans to the boys." And so for
that reason, based on the evidence and testimony, the Court is going to sustain the Motion to
Dismiss.
¶22. The Order of Dismissal stated "having heard testimony in the matter and having considered the
Motion to Direct a Verdict for the Defendant and Dismiss the Case with Prejudice made by the
Defendant at the close of the Plaintiff's case, [the court] finds that the Motion is well taken and
should be granted." (emphasis added).
¶23. The Court of Appeals erroneously determined that the lower court had granted a directed
verdict for Merchants. The record clearly indicates that Merchants argued that the case should be
dismissed and that the lower sustained Merchants' motion to dismiss. Having erroneously determined
that the chancery court had directed a verdict for Merchants, the Court of Appeals held that the
lower court should have viewed the evidence in the light most favorable to the Stewarts and denied
the motion. The Court of Appeals explained that in directing a verdict for Merchants at the close of
the Stewarts' case, it appeared that the lower court decided that the Stewarts did not suffer any
damages from the fact that Merchants had failed to foreclose on the appropriate deeds of trust at the
appropriate time. The court stated that the fact remains, however, that Merchants did not foreclose
on the first deed of trust, in which the Stewarts had an interest in 1988, until five years after the deed
should have been foreclosed. The court also stated that had the lower court not entered an order
bifurcating the trial, the issue of damages would have been resolved in the previous case.
¶24. Clearly, the Court of Appeals' usage of an erroneous standard of review in its analysis rendered
its decision in conflict with the prior cases of this Court which provide that the standard of review
applicable on motion to dismiss under Rule 41(b) is distinguished from that applicable on motion for
a directed verdict. Moreover, a fair reading of the evidence in the instant case would support a
finding that Merchants was not liable to the Stewarts for damages.
C.
¶25. Merchants next argues that the final order of the Madison County Chancery Court's ruling on
the Motion for Citation for Contempt and for Related Matters, as affirmed by this Court, is res
judicata as to the action for damages. Conversely, the Stewarts argue that their failure to get the
equity from the first mortgage when the bank failed to foreclose on the first deed of trust as ordered
caused the damage they sustained.
¶26. A review of the proceedings below indicates that the Stewarts did not file the claim for damages
at the trial level, nor in the subsequent appeal. Instead, they presented the claims for the first time
during the subsequent interpleader action to determine the proper distribution of sales proceeds from
the foreclosure.
¶27. We find that based on the record, the Stewarts should have raised the claims for damages in the
contempt proceeding itself. Having failed to do so, they were precluded from raising such claims in
the subsequent appeal. See Dunaway v. W.H. Hopper & Assoc., Inc., 422 So. 2d 749, 751 (Miss.
1982).
¶28. For the foregoing reasons, we reverse the judgment of the Court of Appeals and reinstate the
judgment of the chancellor.
¶29. REVERSED; REINSTATED; AND RENDERED.
LEE, C.J., PRATHER AND SULLIVAN, P.JJ., PITTMAN, BANKS, ROBERTS AND
MILLS, JJ., CONCUR. McRAE, J., DISSENTS WITH SEPARATE WRITTEN OPINION.
McRAE, JUSTICE, DISSENTING:
¶30. I disagree with the majority's finding that the Court of Appeals erred in reversing the decision of
the chancery court. The chancellor should have allowed the Stewarts to present additional evidence
of damages. Further, because the Bank's ongoing actions have served to keep this case alive for more
than a decade and the issue of damages was not litigated prior to the 1993 damages prong of the
third chapter of this litigation, the Stewarts' claim for damages is not res judicata. Accordingly, I
dissent.
¶31. In Merchants National Bank v. Stewart, 523 So. 2d 961 (Miss. 1988), we affirmed the
chancery court's finding that the Bank was in contempt for failing to foreclose on the Stewarts' first
deed of trust as required under the terms of the July, 1984 agreed court order. In their 1989
Complaint for Interpleader, the Stewarts sought actual damages, punitive damages, attorney fees and
rental fees. Their motion to bifurcate the proceedings was granted in August, 1989.
¶32. After presenting evidence on matters of the parties' rights duties and liabilities, the chancellor
entered an order finding that the Stewarts were entitled to all of the proceeds of the foreclosure sale,
less costs. The Bank appealed that decision to this Court. In Merchants National Bank v. Stewart,
608 So. 2d 1120 (Miss. 1992), the chancellor's order was reversed, awarding the Bank $362, 927.31
and the balance to the Stewarts, with interest prorated between them. On remand, the chancellor was
ordered to disburse the foreclosure sale proceeds and accrued interest. This, however, left unlitigated
and unanswered the issues of punitive damages and attorney fees.
¶33. Trial on the issue of damages was set for November 29, 1993. Eleven days before the trial, the
Bank filed its answer, raising the defense of res judicata and asserting that the Stewarts had already
received all of the relief to which they were entitled, that all issues had been litigated and decided,
and that all matters which could have been raised, had been raised and determined. After the Stewarts
presented their case that the Bank's failure to foreclose pursuant to the agreed order and the
subsequent contempt citation were evidence of bad faith, the chancellor granted the Bank's motion to
dismiss.
¶34. While the Court of Appeals employed the wrong standard of review by considering the
chancellor's dismissal of the case as a directed verdict, this Court compounds the error by finding that
a "fair reading" of the evidence would support a decision that the Bank was not liable to the
Stewarts.
¶35. For the doctrine of res judicata to apply, four identities must be present: identity of the subject
matter, identity of the cause of action, identity of the parties and identity of the quality or character of
a person against whom a complaint is made. Estate of Anderson v. Deposit Guaranty National
Bank, 674 So. 2d 1254, 1256 (Miss. 1996); Aetna Casualty and Surety Co. v. Berry, 669 So. 2d
56, 66-67 (Miss. 1996). Absent any of those identities, the defense of res judicata must fail.
Anderson, 674 So. 2d at 1256. When all four identities are in place, the parties may not relitigate any
issues that were previously litigated or which should have raised in the previous litigation. Id. While
the requisite four identities were present in the case sub judice, the fact remains that neither the issue
of punitive damages nor the issue of attorney fees and any other damages flowing from the Bank's
actions were ever litigated prior to the second prong of the bifurcated trial in 1993. Thus, the Bank
could not properly raise res judicata as an affirmative defense to the damages prong of these
proceedings.
¶36. Even assuming arguendo that the issues of punitive damages and/or attorney fees had been
addressed in any of the previous chapters of this case, that would not have precluded their
consideration at the 1993 damages prong of the third trial. Any prior judgment would have addressed
only the damages that had accrued to that particular point in time. Especially in cases such as this,
where there have been numerous proceedings spanning more than a decade, a finding at some point
that a defendant's actions were not sufficiently egregious to warrant the imposition of punitive
damages does not forever thereafter immunize him from liability or provide him with the defense of
res judicata. Whatever transpires throughout the course of litigation, regardless of the time and
number of proceedings involved, remains subject to judicial scrutiny and review.
¶37. As to the majority's note in passing that a "fair reading" of the evidence would not support a
finding that the Bank was liable to the Stewarts for damages, I further disagree. In addition to
compensatory and punitive damages, the Stewarts also sought $100,000 damages and $10,000
attorney fees stemming from the Bank's unsuccessful appeal of its contempt citation in Stewart I. The
Court of Appeals properly recognized that they should have been allowed to at least introduce
evidence for the court's consideration, noting that "where a party's intentional misconduct causes the
opposing to expend time and money needlessly, then attorney fees and expenses should be awarded
to the wronged party." Selleck v. S.F. Cockrell Trucking, Inc. 517 So. 2d 558, 560 (Miss. 1987).
¶38. The Stewarts charged that the Bank acted in bad faith and as a result off its actions, they
amassed some $106,000 in attorney fees. Again, the Court of Appeals decision acknowledged that
"[t]he fact is, however, that MNB only foreclosed on the first deed of trust in 1988, after a contempt
citation, a supreme court judgment, and five years after the Stewarts initially attempted to foreclose
on the first deeds of trust." A "fair reading" of this evidence, contrary to what the majority states,
suggests that the Bank acted deliberately and in complete disregard of the Stewart's rights in failing
to go through with the foreclosure, thus opening the door for punitive damages. By analogy, similar
action or inaction by an insurer in failing to settle a claim would be sufficiently egregious to warrant
imposition of punitive damages, even where there is technically no "bad faith" involved. Valley Forge
Insurance Co. v. Strickland, 620 So. 2d 535, 540 (Miss. 1993). Moreover, we cannot lose sight of
the fact that punitive damages are awarded not to compensate the plaintiffs for their damages, but to
punish the wrongdoer and to serve as a deterrent. Harvey-Latham Real Estate v. Underwriters at
Lloyd's, London, 574 So. 2d 13, 17 (Miss. 1990).
¶39. At the very least, the Stewarts were entitled to put on evidence of their attorney fees. We have
held that that punitive damages are not a prerequisite for the award of attorney fees. Aqua-Culture
Technologies, Ltd. v. Holly, 677 So. 2d 171, 185 (Miss. 1996). As we explained in Aqua-Culture,
even where punitive damages are not appropriate,
the trial judge may also validly find that the plaintiff should not have to suffer the expense of
litigation forced upon it by the defendant's conduct, and therefore should determine that
attorney fees should be awarded. A trial judge should be granted the flexibility to find that,
although the actual awarding of punitive damages is inappropriate, the conduct of the defendant
is so extreme and outrageous that he rather than the plaintiff, should bear the expense of
litigation.
Aqua-Culture, 677 So. 2d at 184-185. The Bank's actions in the foreclosure proceedings and the
protraction of this litigation clearly is the sort of behavior that would be characterized as so
outrageous and extreme to, if nothing more, require it, and not the Stewarts, to bear the cost of
litigation.
¶40. Accordingly, because the issue of damages was not res judicata and a "fair reading" of the facts
of the case would entitle the Stewarts to attorney fees or even punitive damages, I respectfully
dissent.
1. At the time of agreement, there were three deeds of trust outstanding on the Stewart farm. The
first deed of trust was to the Ross Estate for approximately $400,000, the balance of the original
purchase price of the property to the Stewarts. The second mortgage was executed in favor of the
Small Business Association (SBA) and had a balance of $108,000.00. Merchants held the third deed
of trust.