First National Bank v. Badham

The opinion of the Court’ was delivered by

Judge DeVore,

Acting Associate Justice in place of Mr. Justice Hydrick, disqualified. For the purpose of this opinion it will be necessary only to state that this was a suit commenced 8th August, 1905, based upon two promissory notes set out in the complaint; each being the basis for a separate cause of action, as will appear from the complaint herein.

The main question involved in -the Court below, as well as in this Court, is whether said note9 are negotiable;, it will, therefore, be important to have a copy inserted here.

“$785.00. Columbia, S. C., July - 12, 1902. On or before the first day of January, 1903, for value received in one machinery as per contract November 23, 1899, I, the undersigned, of Richland county, State of South Carolina, promise to pay to the order of V. C. Badham, of Columbia, S. C., seven hundred'and eighty-five dollars, negotiable and payable at the Carolina National Bank, Columbia. Without offset, with interest at the rate of 8 per cent, per annum after maturity until paid, waiving all relief whatever from valuation, appraisement or exemption laws, with all expenses if suit be instituted for collection of this note. And it is expressly understood and agreed that the said V. C. Badham neither parts with the title, nor do the undersigned acquire any title in the property enumerated herein until this note and all other notes given in payment for same, and all extensions and renewals thereof are fully paid. And in case it becomes necessary to employ an attorney to collect this note, a further sum, not exceeding 10 per cent, for fees.' Presentment for payment and protest waived. Sam J. Huffman. P. O. Congaree, Rich-land Co., State of S. C.”

The following endorsements are on the back of the said note: “Pay to the order of Richland City Mill Works. V. C. Badham. Richmond City Mill Works. By H. A. Moore, Treasurer. Pay to the order of any Bank, Banker or Trust Co. All previous endorsements guaranteed. First National Bank, Richmond, Indiana. G. R. DuHadway, Cashier.”

The other note is identical with the above, except the last endorsement, the amount and date of maturity; and these differences do not affect the question of negotiability; in other words, both notes must bear the same fate so far as that question is concerned.

According to the case, another action previous to this was brought on the notes against the maker, Sam J. Huffman, and V. C. Badham, the defendant herein, jointly, but was discontinued and this one commenced thereafter against V. C. Badham, because S. J. Huffman, in the former, answered and pleaded as a defense breach of warranty, alleging that the machinery was sold to him by Badham- as agent for the Richmond City Mill Works, and that he and the Richmond City Mill Works, as an inducement to him, the said Huffman, to buy, had' represented and warranted that said machinery would have a’ certain capacity of production per day, and said notes were given and accepted upon condition that he would not be liable unless the machinery upon trial proved to have such capacity, and same 'had failed to develop such capacity. The defendant, Badham, answered in that suit and virtually set up same defense. The plaintiff, in order' not to become involved in litigation with said Huffman upon that defense, as above stated, discontinued that suit and instituted this one against V. C. Badham alone.

, Badham, in substance, sets up same defense here as in the other suit. In this suit he alleges that' he, as agent of Richmond City Mill Works, had full power and authority to make, and as such did make, the representations, and that he accepted and took the notes subject thereto and that his endorsement on said notes was conditional, that after a fair, trial said machinery did not have the producing capacity of fifty barrels of flour per day, as represented by him to said Huffman.

On the trial in the Court below his Honor Judge R. W. Memminger, presiding, held' the notes to be .non-negotiable. Said trial resulted in judgment for defendant.

The case was heard in this Court, at November term, 1909, involving twenty-six exceptions, almost all of which will depend upon negotiability or non-negotiability of the notes.

Exceptions 9, 10, 15 and 16 in different forms raise the question of negotiability, and will be considered first and together.

1 In so far as our own decisions are concerned, beginning with Bank v. Strother, 28 S. C., 504, 6 S. E., 313, and coming on down to Machine Co. v. Badham, 81 S. C., 63, 61 S. E., 103, the last utterance of this Court upon the subject, for one reason or another, there is a ■difference of opinion among the Supreme Court Justices on the question under consideration. The Court does not seem to have ever been a unit in any of the cases except the Strother case. In that case the note contained three provisions: 1st. “All counsel fees and expenses in collecting this note, if it is sued or placed in hands of counsel for. collection. 2d. Gives payee ‘power to declare this note due at any time they may deem it insecure, even before maturity.’ 3d. With exchange on New York.”

Mr. Chief Justice Mclver, in delivering the opinion of the Court, held the note to be non-negotiable, mainly on the ground that it contained the provision “with exchange on New York,” for, with reference to the other two provisions, he uses this language: “If, however, there was any doubt as to the effect of either of these stipulations', there can be none as to the effect of the exchange provision as above.” Thus clearly showing that he was not fully satisfied, that the other two provisions affected megotiablity.

The next case, Sylvester Beckley Co. v. Alewine, 48 S. C., 308, 26 S. E., 609; 37 L. R. A., 86, the note provided for “ten per cent, attorney’s fees for collection.” Mr. Justice Gary, delivering the opinion of the Court, said that Bank v. Strother, held “that uncertainty in a note prior or subsequent to maturity destroyed its negotiability.” Mr-Chief Justice Mclver concurred in the opinion. Mr. Justice Pope concurred in the result on another ground. Mr. Justice Jones dissented as to question of negotiability.

The next case, White v. Harris, 69 S. C., 65, 48 S. E., 41, the note contained the provision, “we agree in default of payment after maturity to pay ten per cent, for attorney’s fees for collection.” Mr. Chief Justice Pope, delivering the opinion, held the note to be negotiable, for the reason that the attorney’s fees were definite and certain. Mr. Justice Gaiy dissented for the reason stated in the Sylvester case.

The next case, Green v. Spires, 71 S. C., 107, 50 S. E., 554, the note contained a provision “to pay all costs and ■expenses, including ten per cent, attorney’s fees,” if “collected through an attorney or by legal proceeding of any kind.” Mr. Justice Gary, delivering the opinion, held the note to be non-negotiable upon the authority of the Bank v. Strother. Mr. Chief Justice Pope concurred. Mr. Justice Jones dissented as to question of negotiability. Mr. Justice Woods concurred in the opinion of Justice Jones, saying Bank v. Strother should be overruled in so far as it held non-negotiable a note providing for payment of attorney’s fees and costs of collection, which cannot accrue until after maturity.

The next case, Machine Co. v. Badham, 81 S. C., 63, 61 S. E., 1031, the note contained the provision, “negotiable and payable at the bank * * * * with all expenses if suit be instituted for collection of this note.” Mr. Justice Gary, delivering the opinion, held the note non-negotiable. Mr. Chief Justice Pope concurred in the result. Mr. Justice Jones concurred in the result, but dissented on the question of negotiability. Mr. Justice Woods concurred in the dissenting opinion.

The citation of the foregoing cases will show the views of the Justices of this Court, from which it will be seen this Court has been divided on the question under consideration since the case of Bank v. Strother down to the present time.

It is very important that the law on the question involved should be settled by this Court, and rightly settled, not so much in accordance with the needs and purposes of the-times with regard to commercial interest, but in accordance with sound reason as regards ■ the question itself. Our Court being divided in this regard and there being no decision upon which we can rely for precedent, except the case of Bank v. Strother, supra, it will therefore be necessary to look elsewhere for authority.

Mr. Daniel on Negotiable Instruments, 5 ed., sec. 62a, speaking of instruments like those involved here, says: “Such instruments should, we think, be upheld as negotiable,” and continues with his reasons therefor, in the text, and besides oites numerous cases to support same, and also cites the cases contra.

I find the text writers -on the subject are about equally divided pro and con. The Courts -of the several States are about equally divided.

I find that those writers and jurisdictions opposed to holding paper like this under consideration negotiable, do so mainly on the ground of uncertainty as to amount that will- be due under the terms of the instrument. In other words, the commercial world can not estimate the value of paper if put on the market for sale, or negotiation, hence would not know what to pay for it.

Those writers and' jurisdictions who favor negotiability do so on the ground that no uncertainty as to amount due by terms of such instrument can arise until after maturity.

After a careful consideration of the authorities I am forced to the conclusion that the better reasoning leads to the following as a sound proposition of law. If a note or written instrument, otherwise negotiable, contain a provision or provisions, which do not and can not in any way have any effect on said note or written instrument until after it becomes non-negotiable by operation of law, to wit: after maturity, such provision or provisions do not render the same non-negotiable.

• The provisions in the notes, involved here, that is, as to attorney’s fees, and as to expense of collection, do not and cannot affect the negotiable character of the notes, because those provisions can not have any active legal operation until after maturity, when the notes by operation of law become non-negotiable.

2 • The notes involved here are, however, non-negotiable, on account of the following provision contained therein, “for value received in one machinery as per contract November 23, 1899, I promise to pay,” etc. This provision is notice to the commercial world of a contract made November 23, 1899, in connection with the purchase of the machinery for which these notes were given; the terms of the contract do not appear on the face of the notes, but it is sufficiently referred to and stated to inform those who deal with these notes they must take the contract into consideration in so doing.

The Circuit Judge, in the Court below, held the notes to be non-negotiable, which was correct, and this Court will not reverse a correct ruling, though the reason for it be erroneous or unsound.

The notes being non-negotiable, exceptions 1, 2, 3, 4, 5, 6, 7, 8, 11, 12, 13 and 14, which relate to the admissibility of evidence, can not be sustained, and are therefore overruled.

Exceptions 15, 16, 17 and 18 cannot be sustained, the notes being non-negotiable.

3 Exception 19 imputes error to the Circuit Judge in Charging the following: “And if the jury also believe from the evidence, that before the commencement of this action Sam J. Huffman, or the defendant, offered to return the machinery to the plaintiff and the plaintiff declined or failed to accept a return thereof, then the jury should find for the defendant on this ground.” Under the law of this State there can be no rescission of an executed sale for breach of warranty, except: 1st. Where this right is given in the contract of purchase. 2d. Where the seller is guilty of fraud. 3d. Where there has been an entire failure of consideration. The charge, therefore, should have limited the right of rescission to the instances above, and it • should have been left to the jury to say whether or not; if the right ever existed to rescind, it had been waived by the defendant or by Huffman, in not undertaking to do so within a reasonable time.

Under the contention of the parties and in view of the testimony 'submitted in the case, it was error to charge as above.

Exceptions 20, 21, 22, 24 and 25 are disposed of by what has been said as to 19.

Exception 23 is overruled, as the request submitted by plaintiff is not applicable to non-negotiable paper such as is involved here.

4 Exception 26 is overruled, the question raised there being matter in discretion of the trial Judge.

5 Exception 10 is sustained in so far as the question raised therein concerns the charge in regard to sec. 255 B •of the Codie, the same is not applicable here as construed and charged by the Circuit Judge, for the reason that it would have the effect of destroying altogether negotiable paper in so far as this State is concerned.

I/et all the exceptions be reported with the case.

It is the judgment of this Court that the judgment of the Court below be, and the ■same is, hereby reversed, and the case remanded for a. new trial.

Mr. Chief Justice Jones concurs in the result and in the separate opinion of Mr. Justice Woods.