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IN THE SUPREME COURT OF MISSISSIPPI NO. 93-CA-01368-SCT GEORGE WILLIAMS, EXECUTOR OF THE ESTATE OF CHARLES M. WILLIAMS, DECEASED; GEORGE WILLIAMS, INDIVIDUALLY, AND MARY WILLIAMS v. JOE SAM OWEN THIS OPINION IS NOT DESIGNATED FOR PUBLICATION AND MAY NOT BE CITED, PURSUANT TO M.R.A.P. 35-A DATE OF JUDGMENT: TRIAL JUDGE: COURT FROM WHICH APPEALED: ATTORNEY FOR APPELLANTS: ATTORNEY FOR APPELLEE: NATURE OF THE CASE: DISPOSITION: MOTION FOR REHEARING FILED: MANDATE ISSUED: 11/01/93 HON. MICHAEL L. CARR, JR. HARRISON COUNTY CHANCERY COURT FLOYD J. LOGAN WYNN E. CLARK CIVIL - OTHER REVERSED AND RENDERED - 09/04/97 9/18/97 11/13/97

BEFORE SULLIVAN, P.J. , SMITH AND MILLS, JJ. SULLIVAN, PRESIDING JUSTICE, FOR THE COURT: FACTUAL BACKGROUND(1) In 1977 Charles Williams (hereinafter "Charles") formed a partnership with his first cousin Joe Sam Owen (hereinafter "Owen") in an effort to build a night club in Gulfport, Mississippi. Although Charles and Owen never formally entered into a partnership agreement, there is no dispute that they were in fact business partners in this particular endeavor. In order to finance their project, on October 26, 1977, Charles and Owen secured a loan of $250,000 from Hancock Bank (referred to in the Factual Background as "bank"). Both Charles and Owen signed a promissory note as co-makers, making them both jointly and severally liable for the repayment of the loan. Charles and Owen used the loan to purchase a piece of beachfront property and to construct the night club. For security purposes, the bank required a deed of trust on the property and building and a $5,000 savings account. Although not required by the bank, on January 16, 1978, Charles voluntarily purchased a term life insurance policy from Nationwide Insurance Company (hereinafter "Nationwide"). The face

value of the policy was $200,000 with an accidental death rider for an additional $100,000. Charles named the "Hancock Bank (Business Loan)" as the primary beneficiary of the insurance policy, with his parents, George and Mary Williams (referred to in the Factual Background as "the Williamses"), as contingent beneficiaries. At all times, Charles made life insurance premium payments from his personal checking account. Realizing that the initial $250,000 loan was insufficient to complete the night club, Charles and Owen secured an additional loan of $50,000 from the bank on April 20, 1978. Charles and Owen both signed a promissory note on the new loan as co-makers, making them both jointly and severally liable for repayment. The second loan was secured by the original deed of trust. Construction of the building was completed, and the club opened for business as the Shy Anne Social Club. In 1984, Charles executed a will in which he devised his interest in the beach club, land, and building to his mother, Mary Williams. In June of 1986, Charles individually borrowed $48,000 from the bank for a solo project which did not involve the partnership. On October 24, 1986, Charles died. Following Charles's death, Nationwide contacted the bank to inform the bank that it was the beneficiary on a $200,000/$300,000(2) life insurance policy which Charles had owned. Nationwide requested information from the bank as to Charles's total debt owed the bank at the time of his death. The bank informed Nationwide that Charles was indebted to the bank in the principal sum of $246, 161.56. This sum included the remaining debt on the two Williams-Owen notes plus the individual loan he had received in June of 1986. On December 11, 1986, Nationwide sent a check to the bank in the amount of $200,252.86 representing the face value of the life insurance policy and a premium refund of $252.86. After additional investigation, Nationwide honored the $100,000 accidental death coverage, and on February 12, 1987, Nationwide forwarded another check to the bank in the amount of $46, 908.70. Both checks of $200,252.86 and $46,908.70, were enough to satisfy both Charles's individual and partnership debts to the bank. After Charles's debts had been satisfied, the sum remaining from the $300,000 life insurance policy was disbursed to Charles's parents as contingent beneficiaries. Unbeknown to Owen, after the insurance proceeds were disbursed to the bank, George and Mary Williams contacted the bank vice-president and began negotiations for an agreement. The agreement included a commitment by the bank to delay the application of the insurance proceeds to the Williams-Owen partnership notes in order to prevent a satisfaction of the notes by the insurance proceeds alone. Since Owen co-signed the notes with Charles, the Williamses felt that Owen should also contribute to the repayment in an equitable 50%-50% proportion. The agreement was executed by the bank and George and Mary Williams on February 23, 1987. Although the bank had no legal obligation to enter into the agreement with the Williamses, the bank president and vice-president were long time friends of the Williamses and were sympathetic to their plight. Pursuant to the agreement, the bank temporarily delayed the application of the insurance proceeds to the partnership debts, immediately satisfied Charles's individual debts, and placed the remaining proceeds in an interest bearing escrow account under the name of George Williams. As part of the escrow agreement, the bank retained full control over the disposition of the funds deposited in the account, including the right to apply the full amount to the repayment of the partnership notes. The bank, however, promised not to exercise this right until after May 1, 1987, the grace period of which could be extended beyond May 1, 1987, with the consent of both parties. It was not until after the full probate of Charles's estate that Owen became aware of the life insurance policy, the status of the

bank as beneficiary of said policy, and the agreement between the Williamses and the bank. On July 8, 1987, the bank filed a complaint for declaratory judgment naming Joe Sam Owen, George Williams as Charles Williams' executor, and George and Mary Williams, individually, as defendants. In the complaint, the bank sought a declaration on the rights, status, and legal relationships of all parties as to the promissory notes, the deed of trust, and the insurance proceeds held by the bank in escrow. Owen answered and counterclaimed against the bank seeking a judgment directing the bank to apply, in full, the insurance proceeds together with accrued interest to the partnership notes for full satisfaction and discharge of the notes and the deed of trust. The Williamses answered seeking various forms of relief. First the Williamses denied that the bank had the right to apply the insurance proceeds to the partnership debts, claiming that the bank had the right to satisfy only Charles's individual debts. Second, the Williamses requested that if the court determined that the proceeds were applicable to the partnership debts, that only the proceeds necessary to satisfy 50% of the partnership debt be applied, representing Charles's

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