Opinion
14028
March 27, 1935.
Before GREENE, J., Greenville, February, 1934. Affirmed.
Action by C.G. Gunter, Inc., against C.C. Hindman and wife. From an order, sustaining plaintiff's demurrer to and motion to strike out an affirmative defense alleged in the answer, denying defendants' motion to amend by setting up a counterclaim and directing judgment for plaintiff, and the judgment entered on such order, defendants appeal.
The Circuit Court's order, directed to be reported, was as follows:
This is an action on a promissory note in the principal sum of $1,000.00 executed by the defendants, C.C. Hindman and L.L. Hindman in favor of the plaintiff, C.G. Gunter, Inc. The complaint contains the usual allegations appropriate to such action. The amended answer served in due time admits all the allegations of fact of the complaint and then sets forth as an affirmative defense:
1. A real estate trade involving property in Ashville, N.C., in which it was agreed that C.G. Gunter, Inc. (plaintiff herein), should advance $1,000.00 on the purchase price of such real estate and receive as security a real estate mortgage covering other real estate to be executed by C.C. Hindman (one of the defendants herein) and C.O. Hobbs.
2. That for certain reasons the said mortgage could not be executed and C.G. Gunter, Inc., the plaintiff, agreed to pay the $1,000.00 if C.C. Hindman "would send to him the note herein sued upon signed by C.C. Hindman and Lucy L. Hindman and expressly agreed at said time; that said note was to be delivered to Gunter to be held by him as security only until the mortgage hereinabove referred to was executed to plaintiff by Hindman and Hobbs; and defendants allege that said note was delivered only for that purpose and under said agreement."
3. That plaintiff in violation of the agreement refused to accept said mortgage and refused to surrender the note sued on.
4. That the note sued on was executed and delivered pursuant to the agreements stated above and with the distinct understanding and agreement that it was to be delivered to plaintiff as temporary security for the money paid by him and was to be returned to defendants as soon as the mortgage hereinabove referred to was executed; that by reason of the facts herein alleged, the consideration for the said note has entirely failed and to allow a recovery to be had by plaintiff under the facts set forth herein would result in a legal fraud being perpetrated upon these defendants, who have been and are now ready, willing and able to perform their part of said agreement.
To this amended answer the plaintiff demurred on the grounds that the allegations to the affirmative defense set forth in the amended answer do not show a failure of consideration to constitute any other defense to plaintiff's cause of action.
The plaintiff also moved to strike all the allegations of the affirmative defense on the grounds that evidence of the parol agreement set forth was incompetent to vary the terms of the written instrument.
The defendants then moved to amend their amended answer by setting up as a counterclaim the same parol agreement set forth in the affirmative defense.
As to the demurrer:
This case comes before me on plaintiff's demurrer and motion to strike and on the defendants' motion to amend their amended answer. I have reached my conclusions after hearing full argument by counsel for plaintiff and defendants and careful consideration of briefs filed by counsel for both parties. There is little, if any, distinction between the case of Carolina Nat. Bank v. Wilson, 153 S.C. 251, 150 S.E., 765, and the one under consideration. The allegations of the amended answer in both cases set forth the execution and delivery of the note and the payment of the full consideration by the plaintiff and an absolute promise on the part of the defendants to pay the note, expressed in writing, but that the note was to be destroyed when another note was substituted therefor.
As held in the Wilson case, 153 S.C. 251, 256, 150 S.E., 765, 767: "This parol testimony would clearly vary the written instrument under the well-established rule in this state. When the indorsement was made of the note and the note delivered, the transaction was complete, and parol testimony was not admissible to vary plain words of the note. There was no ambiguity in the note, and no agreement that the note was not to be delivered until something else had happened, and the agreement invoked a condition which was not to occur until after the note was delivered; hence there was a valid indorsement and a complete delivery, and parol testimony inconsistent with indorsed note after delivery under the numerous cases cited was properly held inadmissible by the Court."
The allegations of the amended answer do not set forth a conditional delivery of the note sued on. A conditional delivery is one that does not take effect until the happening of some future event; in other words, the note is not delivered, does not go into effect and is therefore no note, until the condition is performed. In the present case the defendant alleged there was a delivery and the note was to be held as security and later canceled upon the happening of a future event. Therefore, in this case the note did take effect and was binding when delivered to the plaintiff.
The author at page 1030, 16 R.C.L., says: "When a writing, upon its face, imports to be a complete expression of the whole agreement, and contains thereon all that is necessary to constitute a contract, it is presumed that the parties have introduced into it every material item and term, and parol evidence is not admissible to add another term to the agreement, although the writing contains nothing on the particular item to which the parol evidence is directed."
In Cline v. Farmers' Oil Mill, 83 S.C. 204, 65 S.E., 272, the Court held: "A simple promissory note for $150.00 for one bay mare mule, cannot be defeated by parol evidence to the effect that that sum was only to be paid in case the maker collected $50.00 of one man and $50.00 of another, as this evidence would vary the terms of the note."
In Blackwell v. Faucett, 117 S.C. 60, 108 S.E., 295, 296, Justice Cothran delivering the opinion of the Court says: "There is no more wholesome rule of law, in my opinion, than that announced in Lagrone v. Timmerman, 46 S.C. [372], 411 [24 S.E., 290]: `When the parties have reduced their contract to writing, the Court can only look to the terms in which the parties have expressed their intention in such writing.'"
There was no failure of consideration for it is admitted that the $1,000.00 was paid by the plaintiff.
On the authority of the case of Carolina National Bank v. Wilson, above referred to, it appears that there can be no question but that the demurrer should be sustained and I so hold.
If there is any reason why the demurrer cannot be sustained, then plaintiff's motion to strike all allegations of the affirmative defense should be allowed on the ground stated therein and because the alleged defense violates the parol evidence rule under the authority of the case above cited, and I so hold.
As to the defendants' counterclaim:
A counterclaim is a cause of action existing in favor of the defendant at the time of the commencement of the action by the plaintiff. It must be a cause of action on which a separate judgment may be obtained.
It must consist of a right to some affirmative relief, and not be matter simply defensive, either in bar of plaintiff's recovery, or in reduction of its amount.
Greene v. Washington, 105 S.C. 137, 144, 89 S.E., 649, 652, hold, as follows:
"A counterclaim is a cause of action existing in favor of a defendant against a plaintiff upon which a separate judgment might be had. Code, § 200. Now, clearly, if defendant paid the note and delivered the cotton, as he alleged, in payment pro tanto of the mortgage debt, he has no cause of action against plaintiff to recover either the amount of the note or the value of the cotton. His only right was to have them applied in extinguishment of the debt. Therefore they cannot properly be pleaded as a counterclaim. In Pom. Rem., § 753, the author says: `It is an essential element in the legal notion of a counterclaim that it must be a cause of action; must consist of a right to some affirmative relief, and not be matter simply defensive, either in bar of the plaintiff's recovery, or in reduction of its amount. Thus, in an action for the price of work, labor, and material, the defendant in his answer set up payments made by him in excess of the plaintiff's demand, but did not in a formal manner call his pleading a counterclaim, nor demand judgment for the surplus. At the trial he insisted that his allegations were admitted because the plaintiff had not replied. His contention was overruled, not upon the defects of form, but upon the absence of any cause of action. The payments as stated to have been made being voluntary, no right to recover back the excess existed; and the answer was nothing more than the defense of payment.'"
It is evident that no cause of action existed in favor of the defendants at the time plaintiff filed suit on its note on which a separate judgment might be obtained. The defendants cannot set up a contemporaneous parol agreement inconsistent with the terms of the written instrument sued on. In Jackson v. Carter, 128 S.C. 79, 85, 121 S.E., 559, 562, it is said:
"`It was agreed between him and the plaintiff that, while the note gave a definite time for payment, the note would not be collected until witness got the money out of the sales,' etc. * * * The learned Circuit Judge doubtless proceeded upon the assumption that, if the testimony referred to a verbal promise made at or before the execution of the note, it was incompetent as tending to vary the terms of the written instrument. That assumption was valid. The alleged parol condition was inconsistent with the express terms of the writing, and under the rule prevailing in this state proof thereof was inadmissible to establish an enforceable contract made at or prior to the execution and delivery of the note. Stalnaker v. Tolbert [ 121 S.C. 437], 114 S.E., 412, and cases there cited."
In Stalnaker v. Tolbert, 121 S.C. 437, 114 S.E., 412, 414, it is held: "The validity of the debt the note was given to `secure' was not in question. Although the law recognizes that parties may legitimately employ a negotiable instrument for the sake of one or more of its special attributes while discarding others, the extent to which an extrinsic agreement of that kind may be made effective is generally limited to alternation or abrogation as between the parties of the implied conditions — that is, the conditions annexed by law to a negotiable instrument, such as the rules of presentment and demand, of acceptance and dishonor, of transfer of title and obligation by indorsement, of primary and secondary liability, etc., Wigmore on Evidence, § 2443. But an extrinsic oral agreement which directly affects the contract in writing as to the matters expressly dealt with in the instrument itself is ineffective."
See, also, Columbia National Bank v. Rizer, 153 S.C. 43, 54, 150 S.E., 316, 68 A.L.R., 443, for a review of cases involving counterclaims.
The proposed counterclaim of the defendants is an attempt to do by indirection what the law does not permit by direction, and in avoidance of the parol evidence rule. This rule is clearly stated in 3 R.C.L., page 862, as follows:
"The rule excluding parol evidence to contradict a written instrument is not infringed by the admission of such evidence to show that the instrument never had any binding force for want of due delivery, or, if not under seal, for want of consideration; because the evidence is offered not to vary the contract, but to prove that no contract was ever made. The inquiry is a preliminary one. But such proof must not go the extent of varying the terms of a note absolute on its face, by showing that though on its face it was given for one purpose, yet in truth and in fact it was given for a different purpose."
This rule is clear and has always been followed by our Court and its application to the facts of the case under consideration is shown in the case of Carolina Nat. Bank v. Wilson, above cited.
Whether the matter which defendants seek to plead be considered from the standpoint of an affirmative defense, set-off, counterclaim, or cross-action, the question at issue is whether such matter can be proved in violation of the parol evidence rule. If the alleged parol contract violates the rule, then it is equally objectionable regardless of the name given to the pleading; for, as held in Jackson v. Carter, above cited, it is but a condition inconsistent with the express terms of the writing and is inadmissible to establish an enforceable contract made prior to the execution and delivery of the note. If the pleadings of the defendants allege any contract, it is inconsistent with the express terms of the note and is inadmissible and unenforceable.
The case of Alexander v. Kerhulas, 151 S.C. 354, 359, 149 S.E., 12, 13, relied on in argument by the defendants in strong authority for the position of plaintiff, it is said: "Evidence is not admissible which, conceding the existence and delivery of the contract or obligation, and that it was at one time effective, seeks to nullify, modify, or change the character of the obligation itself, by showing that it is to cease to be effective or is to have an effect different from that stated therein, upon certain conditions or contingencies, for this does vary or contradict the terms of the writing."
In the present case there was a complete delivery of the note and the proposed defense seeks to "nullify, modify, or change the character of the obligation itself."
The proposed counterclaim and the amended answer of the defendants indicate that the defendant C.C. Hindman is an experienced business man dealing in large properties valued at $50,000.00 or more; that his wife, Mrs. Lucy L. Hindman, signed the note in question at his request. The defendant Hindman admits that he received the money and still owes the full amount of the note to the plaintiff; that he wishes to secure this indebtedness by a real estate mortgage, but he also wishes to get his wife's name off the note.
In so important a matter as this it would have been a very simple and natural thing for a business man of experience to put the contract with the plaintiff, if there had been such a contract, in writing; and not ask the Court "to protect him against the consequences of his own carelessness." Murrel v. Murrel, 2 Strob. Eq., 148, 49 Am. Dec., 664.
Gladden v. Keistler, 141 S.C. 524, 140 S.E., 161, 167, quoting from McDowall v. Beckly, 2 Mill, Const., 265, says: "It is not only a sound and salutary rule of law, but it is equally a law of common sense, that written contracts should not be controlled by oral testimony. The various conceptions of different minds on the same subject, the liability of all persons to forgetfulness, the influence of passion, prejudice, and interest, renders unwritten contracts, at all times, uncertain. But litera scripta manet. It cannot change with times or circumstances; and when a contract is reduced to writing, the law presumes that the writing contains the whole agreement."
I, therefore, find and hold: (1) That the allegations of the defendants' amended answer and proposed counterclaim do not set forth a failure of consideration for the note in question nor show a conditional delivery thereof, but do show the payment by the plaintiff of the full consideration of $1,000.00 and the legal delivery of the note; (2) that the amended answer and counterclaim allege a parol condition inconsistent with the express terms of the writing and are inadmissible to establish an enforceable contract made at or prior to the execution and delivery of the note.
It is therefore ordered: (1) That plaintiff's demurrer to the amended answer be sustained or its motion to strike allowed; (2) that the defendants' motion to amend their amended answer be denied; (3) that plaintiff have judgment against the defendants for amount of the note sued on, with interest and 10 per cent. attorney's fee, making a total of $1,300.92, and the costs of this action.
Messrs. Blythe Bonham and B.F. Martin, for appellants, cite: As to failure of consideration: 121 S.C. 437; 114 S.E., 412; 141 S.C. 524; 140 S.E., 161; 153 S.C. 251; 150 S.E., 764. Conditional delivery: 151 S.C. 354; 149 S.E., 12; 20 A.L.R., 482; 36 A.S.R., 687; 128 U.S. 590; 9 S.Ct., 174; 32 L.Ed., 563. Parol evidence: 91 S.C. 316; 92 S.C. 226; 119 S.C. 340; 170 S.C. 521.
Mr. A.P. DuBose, for respondent, cites: Consideration: 128 S.C. 85; 83 S.C. 204. Discharge: 141 S.C. 538. Conditional delivery: 153 S.C. 252; 16 R.C.L., 1030; 141 S.C. 541; 140 S.E., 161; 13 S.C. 328; 36 Am. Rep., 678; 108 S.C. 47; 93 S.E., 242; 120 S.C. 211; 112 S.E., 921; 123 S.C. 534. Parol evidence: 128 S.C. 85; 151 S.C. 354.
March 27, 1935.
The opinion of the Court was delivered by
Judgment herein was rendered on the pleadings by an order of the presiding Judge, dated February 17, 1934, for the full amount of the note and interest, executed by the defendants, dated August 8, 1931, due November 1, 1931, and payable to the plaintiff.
The order appealed from (1) sustained plaintiff's demurrer and motion to strike out the affirmative defense alleged in the answer, (2) refused defendants' motion to amend by setting up its counterclaim and (3) ordered judgment for plaintiff for $1,300.92.
The exceptions charge error on the grounds that the answer pleads as affirmative defenses failure of consideration; discharge of the note by breach, or satisfaction by what amounts to payment; conditional delivery; and that parol testimony is admissible to establish these affirmative defenses, and that judgment should not have been granted on the pleadings. In other words, the appellants contend that notwithstanding the fact that the plaintiff sues upon a written instrument and promissory note executed jointly by both defendants, yet the defendants are entitled, in spite of the plain and unambiguous terms of the written instrument, and should be allowed under the allegations of the answer to prove by parol testimony the defenses alleged.
The allegations of the answer for the purposes of the demurrer are admitted to be true, and unless these allegations are sufficient to constitute a defense, as a matter of law, the case was properly withdrawn from the jury and tried by the Court. The counterclaim sought to set up the same facts shown in the answer, and further alleges that the plaintiff refused to accept the note and real estate mortgage thereafter executed by C.C. Hindman and C.O. Hobbs and tendered to the plaintiff who refused to accept said note and mortgage or to cancel and return the open note of the defendants herein in violation of their agreement, and by reason of plaintiff's breach of said contract Lucy L. Hindman has been compelled to employ attorneys in this action and incur other expenses to her damage in the sum of $500.00 for which she claims judgment by way of counterclaim.
The circuit order fully, clearly, and correctly sets forth the issues involved in the suit, and to avoid a needless repetition this order will be reported.
The exceptions which relate first to the alleged failure of consideration will first be considered. The allegations of the answer and of the proposed counterclaim show that the plaintiff paid $1,000.00 in cash to the Connally estates as sellers of the Oates building in Asheville, N.C. The purchasers of the Oates building were C.C. Hindman, C.O. Hobbs, and the plaintiff, and each was to acquire a one-third interest in the Oates building; the said Hindman and Hobbs were to convey to the sellers a lot owned by them, and the plaintiff was to pay $1,000.00 in cash; and these three parties agreed to take title to the Oates building and lot of land subject to a mortgage thereon of $40,000.00, and as payment for the balance to execute to the sellers a second mortgage for $14,000.00. It is, therefore, apparent that this agreement was entered into by these three parties voluntarily and that no issue is raised in this suit in regard to the terms of this agreement, which was for the mutual benefit of these three parties. The plaintiff was to pay $1,000.00 in cash and in consideration thereof was to be let into the trade to the extent of one-third interest in the property, but it is alleged that in order to secure the plaintiff against loss on this payment Hobbs and Hindman agreed to execute to the plaintiff their note secured by a mortgage on other real estate in Asheville, N.C. But C.C. Hindman was sick when these parties met to close the trade, and because of his absence and other reasons, and in order to keep the trade from falling through the plaintiff telephoned to Hindman, and agreed to make the payment of $1,000.00 to the sellers, provided C.C. Hindman and Lucy L. Hindman would give their note for $1,000.00 to hold as security until Hindman and Hobbs could execute and deliver their note and real estate mortgage. It is apparent, therefore, that the plaintiff did not pay the $1,000.00 until the note was executed by the defendants herein; and that the defendants executed their note and delivered the same to the plaintiff who, in consideration thereof, made the cash payment to the sellers. Thereupon the trade for the Oates building was consummated and the transaction with the sellers was subsequently carried out and the trade did not fall through. While it appears that the plaintiff, in return for the payment of the $1,000.00, was to receive a one-third interest in the Oates property, it was the further consideration that upon the payment of the $1,000.00 the trade would not fall through and that C.C. Hindman and Hobbs would receive the benefits of the trade. The consideration of the execution of the note by the defendants was not only to save the plaintiff from loss, but was to keep the trade from falling through for the benefit of C.C. Hindman and Hobbs. The allegations of the answer are not sufficient, if true, to show that there has been a failure of consideration, but, on the contrary, these allegations go to show that the note was executed for valid consideration at the time of its execution and that the trade did not fall through because of the payment of the $1,000.00, which was made because of the execution of the note. The answer does not allege fraud in the execution of the note. When the note was delivered, the transaction was complete, and parol testimony cannot be admitted to vary the plain words of the note. Carolina National Bank v. Wilson, 153 S.C. 251, 150 S.E., 765.
The answer fails to allege facts sufficient to show a failure of consideration even if the answer should, for the sake of argument, be construed to allege a different consideration. It cannot be contended that there was a failure of consideration when it is admitted that the plaintiff, after the execution of the note and in consideration thereof, paid $1,000.00 to the third party and consummated the trade for the purchase of the Oates property, and thereby kept the trade from falling through, for the benefit of all three of the purchasers. The appellants' exceptions as to alleged failure of consideration cannot be sustained and are overruled.
We will next consider the exceptions which relate to the alleged discharge of the note by breach or satisfaction by what amounted to payment. The appellants seek to show by parol testimony that the method and mode of payment of the note and its discharge as contemplated by the parties is other than that specified in the instrument. The case of Ballenger v. Macauley, 159 S.C. 389, 157 S.E., 141, 143, is directly in point and fully disposes of this contention. This case holds that it is competent to show by parol evidence a distinct and independent agreement between the parties to a written contract, which does not contradict or vary the written agreement. In the Ballenger case it was held that the note was payable by its terms in money and that the holder of the note was under no obligation to accept stock of the Seneca Bank or anything else in the payment of the note. "If the alleged agreement attempted to be set up in defendant's answer should be allowed to prevail, the plaintiff would be forced to accept something in payment not named in the note, which would be inconsistent with and repugnant to the intention of the parties, as shown by the written instrument involved, the note in question. We are unable to agree with the appellant in his contention that to allow the defendant to exchange bank stock for the note and to require the plaintiff to accept the same would not vary the terms of the note. The wording of the note is full and complete, and, in our opinion, to permit the defendant to prove the alleged parol agreement set up in his answer would be in the face of the settled rules of law and lead to much confusion, if not great wrong."
Under the authority of the Ballenger case, these exceptions cannot be sustained and must be overruled.
Likewise the appellants' contention by the exceptions as to conditional delivery of the note cannot be sustained for the reason that the defendants admitted that the note was executed and delivered by them, but claim that the note was to be held as temporary security for the money paid by the plaintiff and was to be returned to the defendants as soon as another note and real estate mortgage were executed. We think these exceptions are disposed of and settled against the appellants' contention by the settled law of this state. Carolina National Bank v. Wilson, 153 S.C. 251, 252, 150 S.E., 765; Gladden v. Keistler, 141 S.C. 524, 140 S.E., 161; Alexander v. Kerhulas, 151 S.C. 354, 149 S.E., 12.
The defense sought to be set up in the counterclaim is fully disposed of by the circuit decree and for the reason therein stated the counterclaim cannot be allowed. The defendant C.C. Hindman admits the execution of the note by him and its delivery for the purposes for which it was intended and there is no dispute of the fact that the note was also signed by his wife, Mrs. Lucy L. Hindman, pursuant to the express agreement with the plaintiff, prior to the payment by him of the money to the sellers, to keep the trade from falling through. The present attempt of the appellants to dispute, contradict, and vary the plain terms of the note, by attempting to show that another and a different note and real estate mortgage were thereafter to be executed by C.C. Hindman and C.O. Hobbs, in lieu of the original note, is contrary to the rule of law in this State which prohibits the introduction of parol evidence to vary, modify, or contradict the terms of the written instrument. Not only is this true, but the allegations of the answer and of the proposed counterclaim failed to sustain the appellants' contention in this case and are contrary to the settled rules of law and would lead to much confusion, if not great wrong.
The case of Columbia National Bank v. People's Bank et al., 162 S.C. 324, 160 S.E., 728, holds that even where the consideration of a note rests in an extrinsic agreement, written or oral, proof thereof does not necessarily vary the terms of the note; but none of the cases go to the extent of permitting the admission in evidence of an extrinsic agreement, which is clearly in derogation of the terms of the written contract; and this case holds that in an action on indorsements of a note that parol evidence to the effect that indorsers were not to be liable under certain conditions violated the rule of law against parol evidence and was, therefore, not admissible.
The appellants in this case rely upon the recent decision of this Court of Halsey v. Minnesota-South Carolina Land Timber Company, 174 S.C. 97, 177 S.E., 29, and by supplemental argument have cited this case. No new principles of law are promulgated in this decision and it has always been recognized as a part of the fundamental law on this subject that parol testimony may be admitted to show a different consideration from that expressed in a written instrument, when the statement of the consideration is intended as a mere recital, such as "one dollar and other valuable considerations," or such as the term "value received," or any other words indicating a mere recital as to the consideration in a written instrument such as a deed or mortgage or note or other paper; but parol testimony cannot be admitted to contradict the language of the written instrument in reference to the consideration, when it is contractual in its nature. This proposition of law was fought out in the case of Gladden v. Keistler, supra. In the Halsey case the consideration stated in the contract for the purchase price of four tracts of timber land was stated in a lump sum and this Court held that parol evidence was admissible to show the separate value of each tract. It cannot be contended that such testimony would have been admissible to contradict the amount of the total purchase price and to show that a contrary and different sum was the amount of the purchase price of all the timber land.
Notwithstanding the argument of counsel in this case, the questions raised by the exceptions have all been carefully considered and fully disposed of.
The exceptions are overruled and the order and judgment appealed from are affirmed.
MR. CHIEF JUSTICE STABLER, MESSRS. JUSTICES CARTER and BONHAM, and MR. ACTING ASSOCIATE JUSTICE G. DEWEY OXNER concur.