McCoy, Guardian v. Hydrick

January 13, 1928. The opinion of the Court was delivered by This is an appeal by the plaintiff from a directed verdict in favor of the defendant by his Honor, Judge M.M. Mann, in the Court of Common Pleas for Orangeburg County.

The plaintiff is the guardian of her three minor children, and sued as such. The defendant is a practicing attorney at law.

The complaint contained three causes of action, and each of these set forth general allegations to the following effect:

(1) That plaintiff, from time to time, placed large sums of money in the hands of the defendant, to be loaned by him on real estate security, "with the distinct understanding and agreement that he (the defendant Andrew J. Hydrick) would pass on the value of all security and make good in cash any loss, by reason of an investment or loan that he made, and would repay to the plaintiff in cash any loss sustained, if the security taken for any loan or investment made by him failed to bring enough to repay to the plaintiff, after foreclosure and sale, the full amount of such loan or investment, with interest, attorney's fees, and cost, and such agreement was duly entered into by the plaintiff and the defendant, Andrew J. Hydrick."

(2) That plaintiff instructed the defendant, in making the loans, not to "invest or loan any of her money on a second real estate mortgage, and not to invest in or take as security, any property on which existed a prior claim or lien, and the defendant, Andrew J. Hydrick, agreed that he would not take such questionable security for any of the loans that he made."

(3) That, in disregard of his agreement, the defendant negligently loaned certain sums of money on unauthorized security to the plaintiff's loss, and that he thereby became "indebted unto the plaintiff" in the sum mentioned.

In each cause of action the loan complained of is described, and the loss alleged to have been sustained thereby, and the manner of the loss is stated.

The defendant interposed a general denial, and alleged further that the agreement sued upon was within the statute of frauds (Section 5516, Vol. 3, Code, 1922), in that it was sought to charge the defendant upon a promise to pay the debts of other persons, and the agreement so to do rested only in parol.

On motion of defendant, the presiding Judge required the plaintiff to elect if she would proceed on a cause of actionex contract or ex delicate, and the plaintiff chose the former; and it was announced by plaintiff's attorney that he contended, under the complaint, that the defendant was liable "as a borrower and guarantor." There is no exception as to this particular ruling of the trial Judge.

While plaintiff offered five witnesses, whatever case she had was made out by her own testimony, and we need only review what she testified. In some respects, her testimony went further than matters alleged in her complaint, and in some instances there are inconsistencies in her statements. Her testimony, pertinent to the inquiry here, was, in effect, as follows:

In June, 1917, defendant called to collect from plaintiff a premium due on her bond as administratrix of her husband's estate. Upon being informed by her that she had a great deal of money in banks at a low rate of interest, defendant requested that he be allowed to handle the money for plaintiff, and that he would guarantee absolutely every dollar put out by him. Plaintiff consulted her attorney, the late Honorable Thomas M. Raysor, as to permitting defendant to handle the money and was advised by Mr. Raysor to allow the defendant to do so, but not to permit the defendant to make loans outside of Orangeburg County, or to take second mortgages, and not to go over two-thirds value of real estate. The plaintiff, on August 15, 1917, advanced the defendant $850 to be loaned to one Westberry ; and it appears that this loan was repaid in full. At the time, plaintiff wrote in a ledger, which she kept, the following memorandum:

"Mr. A.J. Hydrick guarantees the absolute safety and security of all mortgages made by him and all money loaned to any parties by him."

This memorandum was not signed by the defendant.

Statements in the testimony of the plaintiff in her own language were as follows:

"It was understood that he was to loan this money to these people and take mortgages from the people to whom he loaned money; he was to take first mortgages and not to go full value on them. Money was advanced as the loans were made."

"I told him not to take second mortgages, and not to go out of County and not to take over two-thirds value of property ; I told Mr. Hydrick, that, before I advanced anything. After writing was entered in book, I told him not to take second mortgages, not to go out of County and not to take over two-thirds value of property no matter where it was. He took second mortgages as security on property. He took securities contrary to the instructions given him, property outside of County of Orangeburg."

"He usually sent the borrower out to see me. I could have talked with the borrower about the security, but I trusted Mr. Hydrick."

"When Mr. Hydrick had these securities he kept them in his safe. He kept them about five years in his safe. The first time I saw them was when I went there and got them, some time before this suit, January, 1923. * * * Every time he made a loan he told me that the security was ample, and phoned me and told me about the loan, that it was ample security, and sent the check out for me to sign. I do not know whether the checks were made to Mr. Hydrick or the respective parties; he just sent me out a check and telephoned me and said the security was ample and for me to sign it, and I did sign it."

Plaintiff's testimony further showed that all notes, bonds, and mortgages, and assignments of such papers, were taken in her name. The loans she complained of losses about were loans made to D.H. Hydrick, a brother of the defendant, D.B. Bell, and W.F. Stroman. Against these parties foreclosure suits were had, the lands, in almost every instance, were bid in by the plaintiff, and deficiency judgments were entered up in her favor. Her total loss on loans to these three parties she alleged to be the sum of $13,732.40, for which she made demand on the defendant. The defendant was not made a party to any of these suits.

While it is not necessary, for the purpose of determining the appeal, to review the testimony on behalf of the defendant, it may be stated that his testimony was a denial of the agreement alleged by the plaintiff to have been made by him, and he also offered testimony to show that, at the time the loans complained of were made, the properties were considered to be worth more than the amounts loaned thereon, and that the loss to the plaintiff was due to the deflation in values of farming lands.

The master of the County, Hon. E.C. Mann, testified that there had been, during recent years, a large number of sales of farming lands, under foreclosure proceedings, for loans made through lawyers of the Orangeburg bar, where the lands, on account of the deflations existing, were bid in by the mortgagees for nominal sums.

The defendant objected to practically all of the testimony offered by the plaintiff, and the Circuit Judge sustained the objection as to the alleged agreement, on the ground that the same was not signed by the defendant. The directed verdict was granted for the same reason.

The seven exceptions question the correctness of the presiding Judge's ruling in refusing to admit the testimony and the granting of the motion for a directed verdict. All the exceptions may be disposed of together.

Mr. Justice Cothran, in the recent case of Gaines v.Durham, 124 S.C. 435; 117 S.E., 732, reviewed to some extent our cases which pass upon the provision contained in the Statute of Frauds, which is under consideration here. That case involved the sale of fertilizer by a merchant to a tenant upon the agreement of the landlord to be liable for the debt contracted, and it was held that the landlord was liable, as the agreement was an original undertaking on his part and was not a collateral agreement to answer for the debt of another within the Statute of Frauds. In the opinion, there was quoted with approval the following declaration from the case of Lorick v. Caldwell, 85 S.C. 94;67 S.E., 143:

"Wherever the main purpose and object of the promisor is, not to answer for another, but to subserve some purpose of his own, his promise is not within the Statute, although it may be in form, a promise to pay the debt of another."

The appellant relies strongly upon the principle from theLorick case. Appellant also depends upon the case of Partinv. Prince, 159 N.C. 553; 75 S.E., 1080, where the North Carolina Supreme Court made this holding:

"Where a person orally promised another that, if she would put money in his hands for investment, he would guarantee its safety, this was not a promise to answer for the debt of another within the Statute of Frauds; there being no other debt contracted or contract made except the contract of guaranty." Syllabus.

We do not think the case at bar comes within the principles announced in either the Gaines, Lorick, or Partin cases. It does not appear from the testimony that "the main purpose and object of the promisor" was to "subserve some purpose of his own." The testimony here, from the viewpoint of the plaintiff, was that the defendant was "to answer for another."

In the Partin case, supra, the plaintiff placed her money with the defendant for investment, giving the defendantabsolute control over the same. There was no contract onthe part of any third party to pay the plaintiff the debt. The defendant, as it appears he had the right to do, under the contract with the plaintiff, invested the money in an enterprise in which he was interested. The plaintiff testified that the defendant guaranteed the investment, and told her "that she could look to him for the amount, and not to those other men."

In the case at bar, it seems to have been admitted by the plaintiff that the defendant was to accept, and did take, notes and bonds, secured by mortgages, from borrowers, whose papers were to be made payable to the plaintiff. The plaintiff accepted these papers, and when payment thereof was not made, she instituted suit against the makers of the papers. The defendant was not at any time regarded as a party to the transactions. He was only sued after the plaintiff failed to collect the amounts due her from the makers of the securities held by her. Perhaps, in fairness to the defendant, if the plaintiff regarded the latter as primarily liable for the obligations she had accepted, she should have made him a party defendant to her suits on the notes and mortgages, and, if the Court had held the defendant responsible therefor, then he might have protected his interest by bidding in the mortgaged lands. It must be clear, therefore, that the plaintiff at that time at most regarded the defendant only as a guarantor of the debts due her by those who had borrowed her money. Indeed, in the trial, when called upon to state his position, plaintiff's attorney definitely announced that he claimed the defendant's liability was as "borrower and guarantor." These positions were, of course, contradictory — defendant could not be both the borrower and the guarantor. There was no proof whatever that he was "borrower" of the funds; he was, therefore, liable, under plaintiff's contention, only as guarantor, or not liable at all. The appellant's argument here that the defendant was liable as an original promisor is a change of position from that taken in the lower Court.

In our opinion, this case is very much in line with the principles announced in the case of Robertson v. Hunter, 29 S.C. 14;6 S.E., 850. The plaintiff in that case sought to recover of the defendant, Mills, for goods sold to one Hunter, upon the agreement of Mills that he would stand for the amount of the account. In the opinion, Mr. Justice McIver, speaking for the Court, said this:

"The fact that the undertaking of Mills to see the account paid was one of the inducements, or, indeed, the sole inducement, to extend credit to Hunter, cannot affect the question. The test is whether Mills' agreement was original or collateral, and that it was collateral is clear from the fact that the account was charged to Hunter and he made payments thereon. If Hunter contracted any liability at all, as he most certainly did, then it follows necessarily that Mills' liability was collateral merely, and hence within the Statute of Frauds."

There is an interesting note on the subject under investigation in 15 L.R.A. (N.S.), 214. In the summary, these clear statements are made:

"An oral, contemporaneous, unconditional promise to perform the obligation of the contract, of which another is to receive the benefit by a person not a party thereto, but to whom credit is extended in the first instance by the promisee in reliance upon the promise, is sufficient evidence in and of itself of an intent upon the part of the parties to the transaction that the promisor should thereby create an original, rather than a collateral, obligation.

"But, on the other hand, if, in the first instance, creditis given to the debtor or purchaser, and the promisor islooked to only as a surety or guarantor, it will be presumedthat it is the intention of the parties that the promisor shallby his promise create a collateral obligation, which will bevoid under the Statute of Frauds if not in writing andfounded upon a valuable consideration." (Italics ours.)

It appears as an undisputed fact in the case at bar that the plaintiff, "in the first instance," gave credit to the persons to whom her money was loaned, and accepted for such loans the written obligations of the borrowers; that her contracts were with the makers of the notes, bonds, and mortgages, "and the promisor (the defendant) was looked to only as a surety or guarantor." Under these circumstances, the agreement of the defendant, if there was such, to make good the promises of the borrowers to pay their obligations, was void under the Statute of Frauds, if such agreement was not reduced to writing and signed by the defendant, or some one with authority to bind him. There was absolute failure to prove any such written agreement on the part of the defendant. If follows, therefore, that the Circuit Judge was correct in his holding that the plaintiff had failed to make out her case, and it was proper that the motion for a directed verdict in favor of the defendant be granted.

In the argument, the appellant takes the position that the trial Judge erred in not submitting to the jury the question of the defendant violating the instructions given by the plaintiff as to the securities he was to take for money loaned. In support of this position, counsel for the appellant cites the following from Corpus Juris:

"An attorney's duty, where he is specially instructed, is to follow the instructions of his client, except as to matters of detail connected with the conduct of the suit, and he is liable for all losses resulting from his failure to follow such instructions with reasonable promptness and care," etc. 6 C. J., 704.

We agree with the principle announced, but under the circumstances of this case, as shown by the record, we cannot, at this time, consider it in favor of the appellant. In the trial below, the appellant saw fit to stand upon her alleged agreement that the respondent was to "make good" the losses on securities, which were accepted through him. She did not choose to stand upon the allegations of her complaint that the defendant had negligently failed to carry out the instructions she had given him. As noted above, there was no appeal from this ruling of the Circuit Judge, and the question raised in the argument is therefore not properly before this Court.

It is the judgment of this Court that the judgment below be affirmed.

MR. CHIEF JUSTICE WATTS and MR. JUSTICE CARTER concur.

MR. JUSTICE STABLER did not participate.