Greenville v. Ormand

The opinion of the Court was delivered by Mr. Justice Pope. The above entitled action came on for trial before his Honor, Judge Watts, and a jury, at the November, 1896, term of the Court of Common Pleas for York County, in this State. After a verdict in favor of the plaintiff and the entry of a judgment thereon, all the defendants, except G. C. Ormand, as survivor of Ormand & Goforth, appealed therefrom. In order that the grounds of appeal may be understood, it seems to me that some reference to the pleadings, the testimony, and the charge of the Circuit Judge will become necessary. The complaint of plaintiff alleged that the defendants were indebted to it by reason of two promissory notes, executed in 1892, in the aggregate sum of $4,000, and interest thereon, at the rate of eight per cent, per annum, from the 10th day of May, 1892, until paid, and costs. The answer admitted the execution of the two notes in question, but denied any liability to pay said notes. First, because they deny that plaintiff is the lawful owner and holder of said two several notes, or either of them, by indorsement, transfer or otherwise. They allege that neither W. E. Beattie, cashier, nor the National Bank of Greenville, acquired any title to the said notes, or either of them, and that plaintiff had notice of want of title at the time of said alleged transfers, if any were made, and that plaintiff paid no consideration therefor. Second, because they allege -that W. E. Goforth and G. C. Ormand were the principal makers and payers of said two notes, respectively, and that R. J. Dunlap and the defendants, E. K. Armstrong and E. R. Williams, were, and are, sureties thereto; and that plaintiff and W. E. Beattie, cashier, knew the relations of the several parties signing-the two said notes. Third, because they allege that the said R. J. Dunlap, now deceased, and the defendants, E. R. [66] Williams and E. K. Armstrong, as sureties, signed the two several notes, payable to W. E. Beattie, cashier, for the purpose of enabling the principal makers, Ormand & Goforth, to borrow money from W. E. Beattie, cashier of the National Bank of Greenville, for the purpose of completing in a speedy and economical manner the sewerage work undertaken for said plaintiff, then well advanced, and for the completion of which the said sureties had undertaken by their bond. And it was not the purpose of said sureties, or either of them, in making said notes, to permit the same to be negotiated to any other person or corporation, or for any other purpose than as herein set forth. And these defendants allege that the plaintiff, without authority from these defendants, took possession of said two notes without advancing to the principal makers the cash for the same, and gave said Ormand & Goforth credit on account for the value of said notes; and these defendants are informed and believe that the said two notes were misapplied by plaintiff to a previously existing indebtedness by Ormand & Go-forth to said city council (the plaintiff), for which these defendants were in no wise liable, and of which they were then ignorant, and to other purposes not contemplated by said contract of suretyship. Fourth, because the defendants deny that they, or either of them, are indebted to plaintiff in any sum whatever upon said notes, or either of them, and because the plaintiff is, largely in excess of the said two notes and interest on the same, indebted to the said Ormand & Goforth by reason of work and labor done under their contract with the plaintiff in the construction of the sewerage system. I do not quote more from the answer on this fourth defense, so far as the indebtedness of the plaintiff to Ormand & Goforth for work done in the construction of the sewerage system is concerned, for the reason that this element seems to have been, in some way, eliminated from -the action at the trial thereof. The testimony is not voluminous. The following is a copy of one of the notes in question — the two were practi [67] cally identical: “$2,000. Greenville, S. C., May 7, 1892.— On demand after date, we, or either of us, promise to pay to W. E. Beattie, cashier, or order, negotiable and payable at the National Bank of Greenville, S. C., without offset, the sum of $2,000, for value received. Interest after maturity at the rate of eight per cent, per annum until paid. (Signed) Ormand & Goforth; R. J. Dunlap, E. R. Williams, D. K. Armstrong. Indorsements: Without recourse on this bank. Hamlin Beattie: president. Without recourse. W. E. Beat-tie, cashier.” E. J. Bostick, a witness for the plaintiff, testified in substance as follows: As clerk and treasurer of the city of Greenville, I was present in my office during the morning of the 11th May, 1892. There were present several members of the city council, also the sewerage contractors, Ormand & Goforth. I am not positive both of said contractors were present — I am certain one of them was present — I think Mr. Ormand was. The two notes now in question were in the hands of members of the city council when I entered my office. The mayor and myself were instructed to indorse these notes. We did so, and I was then instructed to carry the two notes over to the Greenville National Bank, and tender them to the bank officials. Mr. Ormand went with me. When we tendered the notes at the bank, Mr. Beattie, as its president, said: “The city council is now in funds, and let the city lend the money on these notes to Messrs. Ormand & Goforth.” Mr. Beattie then said that there was no need for the mayor and clerk and treasurer to indorse these notes. And he then, and also the cashier, wrote the words on each note which appear on the same above their official signatures. “I then took the notes back to my office, and the mayor then erased his name and I erased mine. The city council then ordered me to pay Ormand & Goforth $2,500 at that time and $1,500 after-wards. In all I paid Ormand & Goforth $4,000. This money has never been paid back to the city council of Greenville. Mr. Ormand was present all the time.” On his cross-examination he explained that the money was [68] paid by his checks on the Greenville National Bank. The check was produced and identified by the witness as having been obtained from the Greenville National Bank. This witness also testified that when the bank officers put their indorsement on the two notes, nothing was paid to them, and that the witness knew that the bank had not advanced any money on these two notes. He also testified that he knew that Mr. Williams, Mr. Dunlap, and Mr. Armstrong were sureties on the two notes. G. C. Ormand was sworn as a witness for the defense. He testified that he was a member and survivor of the firm of Ormand & Goforth; that said firm had contracted to construct and did construct the sewerage system for the city of Greenville; that said firm began work about 28th March, 1892; that his partner, Goforth, died 31st July, 1892. He also testified that he arranged with Dunlap, Armstrang, and Williams to sign the two notes. It was offered to read depositions made by Hamlin and W. E. Beattie, and also that of Dawson E. Armstrong. The Court declined to allow the same read on the ground of irrelevancy. Such testimony appears copied in the “Case.” 1 As the requests to charge appear in the grounds of appeal, it will be well to report the charge of the presiding Judge and the grounds of' appeal. We will now consider the grounds of appeal. The first imputes error to the Circuit Judge in allowing the witness, F. J. Bost-ick, to testify as to what occurred when the witness and G. C. Ormand went with the notes to the National Bank of Greenville, to attempt their negotiation with said bank, when its cashier, W. E. Beattie, was named as the payee therein, and when the defendant sureties were not present. It is certainly true that all the makers of these two notes placed the notes in the hands of G. C. Ormand as their agent, to negotiate the same with the National Bank of Greenville. The defendants so admit in their answer, and such facts, except as to Ormand’s agency, appear in the notes themselves. Why was it not competent for this witness, who was present as an interested person, to [69] ■detail what occurred then in connection with the attempt at the negotiation of these notes? In fact, the admissions of this witness as to what occurred then is made the basis of the principal defense by the defendants. The testimony was relevant to the issues raised by the pleadings themselves; but apart from the pleadings, where notes, such as the present, are in issue, any testimony in the line marked out by the terms of the notes is competent. 2 As to the second exception, relating to the competency of certain testimony offered by the witness, Ormand, the Judge was clearly right here. Ormand testified that books were kept by his firm, which showed the condition of the account of said firm with the city council of Greenville at all times, and that his knowledge was derived from such books, but that he was unable to state from his memory the condition of and detail of such account; also, it did not appear that such books were not in existence. Such books were the best and proper evidence as to these matters. It was not error to deny this witness any right to speak of this account from memory. 3 As to the third exception. The witnesses, Ormand, Armstrong, and Williams, could not testify as to conversations of the makers of these notes at the time they were signed, unless it was first proved that the plaintiff, or some one or more of its agents, were told of these •conversations between the makers. There was no effort to prove any such knowledge on the part of the city council or its agents. 4 The fourth exception relates to the depositions of Hamlin Beattie and W. B. Beattie, relating to no consideration passing, when they, as officers of the bank, wrote their indorsements without recourse upon the two notes. The defendants had the right to this testimony, but it was immaterial error, because the plaintiff, through its witness, F. J. Bostick, fully admitted that nothing was paid to the bank at the time these indorse-ments were made by its officers. [70] 3 Fifth exception relates to the admission of the deposition of Williams, one of the sureties to the two notes. The Circuit Judge committed no error in refusing to allow this deposition to be read in testimony; it related to the conversation alleged to have occurred between the makers when they signed the two notes, and no notice of such conversation was brought home to the city council, or its agents. 7 We come now to the alleged errors of the Circuit Judge in his charge, and refusals to charge. It is settled law that the charge of the Judge must be restricted to the issues raised by the pleadings and the testimony in the cause. That portion of the Constitution of the State which requires that “Judges shall declare the law,” means that Circuit Judges shall declare the law involved, or necessary, in causes then on trial, and not that Judges shall declare the whole of the law, embracing all cases, civil and criminal. What were the issues tendered by the pleadings and raised at the trial? First. That the plaintiff could not hold the defendants to any liability on the two notes sued on, because the notes were on their face made negotiable by the National Bank of Greenville, but were not so negotiated. Second. Because the indorsement by the president and cashier of the Greenville National Bank, being without value, was a nullity, and did not, and could not, carry title to the notes to the city council of Greenville. Third. Because, even if such indorsement of said bank was. valid, the city council were not holders for value, by reason of the fact that there was no value paid by the plaintiff for such notes. Fourth. Because the city council could not be holders for value as against the sureties by reason of the fact they took said notes with full notice of the conditions expressed on the face of said notes. Fifth. Because the city council of Greenville could not be the legal holders of said notes, because of a condition made by the makers of the notes at the time they signed the same, although not expressed on the face of the notes. Sixth. Because the city [71] council had notice of the fact that the defendants, except Goforth, were sureties only, and, therefore, it was incompetent for Ormand & Goforth to vary the terms of said notes without the approval of said sureties, and having done so, the city council of Greenville, as against said sureties, had no right to the position of holders of these notes. [71] I confess, at the outset, that this action, or rather the appeal therefrom, has occasioned me profound concern, for, on the one hand, the rights of holders of negotiable notes for full value are concerned, and, on the other hand, the rights of indorsers, who claim that their contract should be restricted by the terms actually employed by them in the notes, which represent their contract, are involved; and if I fail to mete out the law merchant in this cause, it is not by reason of the want of careful, protracted and patient reflection on my part. The cases of Fowler v. Allen, 32 S. C., 229, and Sullivan v. Williams, 43 S. C., 489, establish the doctrine in this State, that when the makers, including sureties, entrust a negotiable note to one of the makers to carry out the terms of the contract, he is made the agent of such makers. Ñow, I wish to be understood correctly just here. I do not mean that any general agency is thus created — that such an agent can do anything and everything; but such agent can do everything within the contemplation of the contract as expressed therein. Now, it is admitted on all hands that the firm of Ormand & Goforth were entrusted with these notes after the parties had signed the same. What was the admitted purpose of these notes? The defendants in their answer say it was “for the purpose of enabling the principal makers, Ormand & Goforth, to borrow money from W. E. Beattie, cashier of the National Bank of Greenville, for the purpose of completing, in a speedy and economical manner, the sewerage work undertaken for said plaintiff, then well advanced, and "for the conv-pletion ofzvhich the said szireties had zmdertaken by their bond''’' (italics mine.) The contract for the sewerage work was begun about April, 1892, and completed in September, [72] 1892. It is not claimed that there was any diversion of any of these funds arising from the negotiation of these two notes. It is true, in this connection, that the defendant sureties, in their answer, did claim that the notes did not yield to Ormand & Goforth any money, but that the same was given as a credit on Ormand & Goforth’s account with the city council of Greenville on the sewerage contract; but the testimony was absolutely convincing in the cause that $4,000 was paid in cash by the city council of Greenville to Ormand & Goforth on these two notes. So, in the charge of the Judge, there was no request from defendants in reference to the fact that money was not paid by the city council of Greenville to Ormand & Goforth on these two notes. Thus they left it as a fact to be determined by the jury, whether the city council paid value for the notes, and by the verdict of the jury it was established that the city council did pay value for the notes. And it will appear, by reference to the requests to charge, that the defendant sureties made their battle on the ground that they alone contracted in their notes for the same to be negotiated at the Greenville National Bank, and by no other person or corporation. We have already seen that there was no material diversion of the funds, which it was agreed between the makers should be realized by the negotiation of their notes, and that the $4,000 named in the two notes was actually paid to Ormand & Goforth by the city council. It remains, then, to determine if the surety defendants are released by the fact that the officers of the bank at Green-ville did not actually pay any money or receive any money. To test this matter practically, what would have been the result if the city council of Greenville had paid the $4,000 without the notes ever having been carried to the National Bank of Greenville? I think, under the authority of Pease v. Dwight, 6 Howard’s (U. S.) Reports, 190, the city council of Greenville could maintain this action. Under that decision it was held that the statute of 3 & 4 Ann, chap. 9, would be answered in the case of a note reciting in its body [73] that “ Walter Chester and Pease, Chester & Co., or order,” were the payees, if only Pease, Chester & Co., with which firm Walter Chester was in nowise connected, indorsed said note, and Walter Chester refused to indorse said note. The principle affirmed was that the plaintiff, Dwight, who had paid full value for the note, upon the indorsement of it over by the payees, to wit: Pease, Chester & Co., could maintain an action on it. This decision was made to answer the old requirements as to ownership of commercial paper payable to “order,” which requirements were very strict in the matter of the indorsement of such paper to enable one as in-dorser to maintain his action. But now, under the changes wrought by our Code of Procedure, it is not necessary that a holder for value of such paper should have the same indorsed to him; for if he is the legal owner and holder of such note, he not only may sue, but he alone can sue, except in cases of certain trusts. It seems to me that when the indorsement in blank without recourse appeared upon these two notes by the said National Bank of Greenville, although they neither received nor paid a dollar therefor, that it did not interfere with the rights of the surety makers of the note. If the bank had discounted the paper in due course of business, it was in the power of the bank the next minute to transfer such paper to any one else. So that their indorsement in blank, without actually discounting the paper itself, enabled a third party, the city council of Greenville, to pay every dollar to the makers, Ormand & Goforth, and thereby become the lawful owners and holders of said paper. Now, I admit that the city council of Greenville could not have acquired those notes except by the payment of the $4,000, as contemplated by the makers. In other words, they could not have taken that paper and applied it to the payment of any balance due to them by Ormand & Goforth, under their contract to construct a sewerage system for the city. It seems to me that the case of Powell v. Waters, 17 Johns., 176, where A made a note payable to B, or order, which was indorsed by B, for the [74] purpose of being discounted at a bank for the accommodation of A, who, on being refused at the bank, negotiated it to a third person with a full knowledge of the circumstances, and the holder was allowed to recover, is fully up to the point involved in this case. I am inclined to hold that the use of the name of the cashier of the bank, as payee, and, also, the making of the note negotiable at such bank, merely put it in the power of these sureties to prevent any diversion of such notes to any other purpose than raising the $4,000. This was effected in the case of Dogan et al. v. DuBois et al., 2 Rich. Eq., 85. It appears in that case that one DuBois was in business at Union, in this State, and desiring to raise $2,000 in cash, he applied to William Rice to indorse a note for that amount at a bank in the city of Columbia, S. C. When DuBois applied to Rice, the note already had the name of John Gist, as payee and indorser thereon. Rice paid the $2,000 in cash, and carried the note to the bank, where, upon his indorsement, the bank cashed the note for him. Before the maturity of this note, DuBois applied to Glenn and Shelton to indorse a new note, also payable at the bank, for a like sum, to renew the first note, on which John Gist and Rice appeared as indorsers. They did so, Glenn being first indorser and Shelton second in-dorser. This note was sent by DuBois to Rice, who was then in Columbia, with $20 in cash, directing said Rice to carry the note to the bank for discount in substitution of the first note. Before Rice could apply to the bank with this second note, Glenn became alarmed as to DuBois, and at once wrote to the bank, refusing to stand as indorser on the note and also making demand upon Rice for the note he had indorsed and in Rice’s hands as aforesaid. Rice refused to deliver the note. Afterwards Rice died. It was found by a jury that John Gist’s name on the note was a forgery, and Rice had to pay the first note to the bank. Therefore, Rice’s executors tried to hold Glenn responsible on his note. Glenn had received a mortgage from DuBois to protect him as indorser. BuBois’ general creditors attached his property [75] and obtained judgments for their respective debts. Glenn and the executors of Rice made this agreement, that Glenn would confess a judgment for the $2,000 note, and that the executors of Rice would satisfy the same of record at once, but Glenn was to execute the transfer of the mortgage Du-Bois had given him to such executors. This agreement was fulfilled. The general creditors of DuBois, whose claimá had been reduced to judgment, claimed that such assignment of the mortgage by Glenn to the executors of Rice was null and void, as Glenn had not in fact any claims against DuBois, and, therefore, BuBois’ mortgage to Glenn was a nullity. The Court held that Glenn, as an accommodation indorser on DuBois’ note made payable at the bank and in the hands of Rice, as DuBois’ agent for that purpose, had a perfect right to withdraw from his engagement as such accommodation indorser at any time before the note was negotiated at the bank, and also that the note was in the hands of 'Rice, purely as the agent of DuBois, to be negotiated at the bank to renew the old note, and that Rice could not divert it to any other purpose. The Court adjudged that no rights in Glenn as to' the mortgage of DuBois to him had any existence. It will be seen that in the case just considered, no consideration passed from Rice to DuBois on the second note; hence this decision does not antagonize the position I have taken in the case at bar, but this case is authority for the position that an accommodation indorser may withdraw his name from a note at any time before the note is actually negotiated. I make this observation to dispose of any question, if it had been made (and it was not), that the city council had no right to withdraw their intended indorsement as accommodation makers of these notes. No actual negotiation of such notes for value had been made when the mayor and city clerk erased their names as accommodation in-dorsers. But no such question is raised in this case, and, therefore, this discussion is unwarranted. I cannot agree [76] that the Circuit Judge committed any error in his charge, as pointed out in the exceptions here presented. 6 The last exception relates to the matter of an increase in the amount of the judgment over the verdict rendered. This Court, in law cases, is confined to the correction of errors of law in the Court below. I see no evidence in the “Case” for appeal that any such question has been presented to or passed upon by the Circuit Judge. This seems to me, therefore, the first time any Court has had its attention called to this matter. I must decline to consider it, but without prejudice to any application to the Circuit Court for a correction in the amount of the judgment in excess of the verdict. The foregoing presents my own views of the merits of this appeal, and I think the judgment of this Court should be: It is the judgment of this Court, that the judgment of the Circuit Court be affirmed. But the majority of the Court think otherwise, and, therefore, 'as the organ of the Court, I announce its judgment, that the judgment of the Circuit be reversed, but I dissent from that judgment.