South Carolina National Bank v. Union County

This is an action upon two negotiable promissory notes, executed by J.V. Askew as Supervisor of Union County, dated December 15, 1927, due June 15, 1928, payable, to himself or order, officially, and indorsed and delivered by him to Citizens' Bank Trust Company of Union, S.C.; each note was for $10,000.00 with interest from date at the rate of 5 per cent. per annum. Both notes were transferred by the Union bank to the South Carolina National Bank, for full face value, on December 23, 1927. A copy of one of the notes (the other being identical with it), is set forth in the opinion of Mr. Justice Stabler, with the memoranda attached.

The complaint contains two causes of action, separately stated; the one upon the notes with interest, subject to a credit of $2,000.00 paid by the receiver of the Union bank on August 1, 1928, and the other practically a count for money had and received (the proceeds of the sale of the notes sued upon), by the county, for the use and benefit of the holder thereof.

The defendant answered denying its liability upon the notes as having been executed and delivered by the Supervisor without warrant of law, as will later be explained.

The case was tried before his Honor, Judge Johnson, and a jury; at the close of all of the testimony he directed a verdict in favor of the defendant upon the grounds stated in his order. From the judgment entered thereon, the plaintiff has appealed.

The facts of the case are as follows:

On December 15, 1926, the County of Union entered into a reimbursement agreement with the State Highway Commission, whereby it contracted to make a loan to the commission of $20,000.00, to be used in hard-surfacing a highway in the county, as authorized by what is known as the "Pay-As-You-Go Act" (33 Stat., 1193); in order to provide the necessary funds, the Senator and county legislative delegation authorized that sum to be borrowed; after due advertisement the bid of the Union bank was accepted; thereupon there were executed by or on behalf of the county two notes, each in the sum of $10,000.00, dated December 15, 1926, and due December 15, 1927, with interest from date at the rate of 5 per cent. per annum; these notes were delivered to the bank and the proceeds were used in complying with the reimbursement agreement with the State Highway Commission; the proposed highway was constructed; it appears that the State Highway Commission complied with its agreement to reimburse the county for the advance.

When these original notes (as I shall refer to them) became due on December 15, 1927, the county had no funds on hand to pay them; application was made to the bank for a renewal of the notes, which was agreed to by the bank; the Supervisor then executed two other notes (those described in the complaint, each for $10,000.00, dated December 15, 1927 and due June 15, 1928), and indorsed and delivered them to the bank as renewals of the two original notes.

On December 23, 1927, the president of the Union bank transferred them to the plaintiff bank; he received the proceeds thereof, $20,000.00, and the interest for 8 days, $22.00, $20,000.00 of which he deposited, on December 24th, to the credit of the Supervisor, as a special account; (there was evidence tending to show that the Supervisor knew nothing of this deposit until after the failure of the bank, which occurred on January 18, 1928).

The Supervisor testified that a few days before the maturity of the original notes, December 15, 1927, the president of the bank came to him and asked him what he wanted to do about the notes; that he told him that he wanted to renew them, to which the president agreed; that the president went away and later returned with the two $10,000.00 renewal notes which he, the Supervisor, signed; that about ten days "from that," which was evidently after he had sold the notes to the plaintiff bank, the president returned and requested the Supervisor to give the bank a note for $20,000.00 in lieu of the two renewal notes, stating that he could not handle the two $10,000.00 notes, but could handle a note for $20,000.00; this the Supervisor acceded to, and signed the $20,000.00 note upon the president's promise to return the two $10,000.00 notes previously signed, intending that the $20,000.00 note should constitute a renewal of the two original notes; the two renewal notes, of $10,000.00 each, and the $20,000.00 note were all dated December 15, 1927, and due June 15, 1928. The president's promise to return the renewal notes was not fulfilled, for the apparent reason that they had then been transferred and delivered to the plaintiff bank.

When the two renewal notes of $10,000.00 each, which had been assigned to the plaintiff bank, fell due on June 15, 1928, the plaintiff's demand for payment was refused, and the present action was commenced.

The defendant answered by a general denial, and also pleaded, as a special defense, that the notes were not executed as required by law, in that they were not countersigned by the Treasurer of the county, and no notice was given to the county advisory board; that the defendant never received any consideration for them. His Honor, Judge Johnson, granted the motion for a directed verdict upon this position of the defendant.

It is proposed to decide this case solely upon the issue of the validity of the renewal notes of December 15, 1927; the defendant set up their invalidity as a defense; the Circuit Judge sustained the contention of the defendant; his conclusion, directing a verdict in favor of the defendant, is proposed to be affirmed in the opinion submitted by Mr. Justice Stabler upon the same ground.

I agree in the main, with the very elaborate and clear exposition of the law by the learned Justice, regarding the power of the Supervisor, to execute, as original and binding obligations of the county, the renewal notes in question; but I think that the evidence has developed circumstances tending to show the express or implied authority of the Supervisor to execute them, sufficient to require a submission of this issue to the jury.

As I shall endeavor to show later, there has developed no objection to the validity of the original notes; it must be assumed that the Treasurer and the advisory board knew of their execution and delivery to the bank; the money obtained from the bank upon them was deposited to the credit of the Treasurer and drawn out and paid to the Highway Commission in a lawful manner and to the knowledge, necessarily, of the fiscal agents of the county authorized to disburse it; they are presumed to have known of the maturity of the notes; evidently the proposed renewals and the necessary payment of the accrued interest for a year were within their knowledge; their silence until the failure of the bank in January, 1928, is significant, showing a ratification of what the Supervisor had done. But for that failure, doubtless nothing against the authority of the Supervisor would ever have been suggested. The truth of the matter is that the failure of the bank, the loss of the deposit of $20,000.00 and the double-dealing of the president of the bank have induced the effort to seek shelter under technical objections.

I think, however, it may be assumed that the renewal notes were executed by the Supervisor without authority of law, and unauthorized and unratified by the legal fiscal agents of the county, and still it be held that the county is liable to the plaintiff bank upon the original notes, or the debt which is evidenced by them.

There is no shadow of suspicion upon the original notes of December, 1926, of $10,000.00 each; counsel for the defendant admit that they were valid obligations of the county at the time of their execution and delivery to the Union bank, but assert that they had been paid: "Mr. Hamblin: I might state I was a member at that time and it was a legitimate obligation, and it was paid." (It nowhere appears, so far as I have discovered, that these original notes had been paid; they certainly were not paid by the execution of the renewal notes of December, 1927, for that only can be considered payment that produces payment. If he referred to the $20,000.00 note proposed to be substituted for the two $10,000.00 notes of December, 1927, I have discovered no evidence sustaining that statement; it may have been paid; I do not know; but whether paid or not makes no difference).

This occurred during the progress of the trial: "Mr. Haynsworth: There is no question, your Honor, of the validity of the note (original notes?); in Mr. Hamblin's answer he admits that. The Court: I don't think there is any question about that"; to which there was no reply.

Aside from the admission of counsel, the evidence abundantly shows not only that the original notes of $10,000.00 each were valid obligations of the county, given to raise the agreed sum to be paid under the reimbursement agreement with the Highway Commission, but that the proceeds were applied to the liquidation of that obligation.

I do not think that there can be a doubt but that if the Union Bank had not transferred the renewal notes of December, 1927, had brought suit upon them and had been met by the defense that the notes were invalid obligations of the county (for the reasons now urged against their validity), the bank would have been entitled, notwithstanding, to recover upon the original valid notes for which the renewal notes had been given. When therefore the Union Bank assigned the renewal notes to the plaintiff bank, it assigned to it all right which it had by reason of the original transaction; the two $10,000.00 notes, admittedly valid, which were executed and delivered in December, 1926.

The point I think is covered by the eight exception, which reads as follows: "He erred in not holding that the two notes sued on were executed in renewal of valid obligations of the county and were delivered for this purpose to Mr. Morgan, the President of the Citizens Bank and Trust Company, and that in the hands of the plaintiff, a purchaser for value, without notice, before maturity, the said notes constituted valid debts of the county."

In 1 Daniel Neg. Inst. (5th Ed.), § 748, it is said: "The assignment of any particular claim is considered an equitable assignment of all securities held by the assignor to assure it. Thus the assignment of a debt by whatever form of transfer, carries with it any bill or note by which it is secured; and the converse of the proposition is equally true, that the transfer by endorsement or assignment of a bill or note carries with it all securities for its payment, whether they exist by way of mortgage, deed of trust or otherwise. A renewal note has the benefit of any security for the payment of the original, whether by way of mortgage, deed of trust or otherwise, and the holder may enforce it, whether the renewal be for the whole or for part of the original, in the absence of any agreement to the contrary."

At Sec. 205, it is said: "* * * And if the renewal note be a forgery, or be obtained by fraud, it does not discharge the original, although the original was surrendered up * * * and as a general rule the surrender of the preexisting note does not discharge it."

"Security for payment of note remains valid security for payment of renewal note." Cohen v. Rossmoore,225 App. Div., 300, 233 N.Y.S., 196, 197.

"As the original note was undoubtedly a valid obligation, the execution of the renewal note was not a novation of the original debt, and made no change in it." Bohning v. Caldwell (C.C.A.), 10 F.2d 298, 299. (Certiorari denied,271 U.S. 663, 46 S.Ct., 475, 70 L.Ed., 1139).

"The giving of a renewal note has no effect, in the absence of an agreement therefor, to discharge either the makers or indorsers of the original note, if, for any reason not chargeable to the wrong or fraud of the holder, the renewal proves invalid." Farmers' Savings Bank v. ArispeMercantile Co., 139 Iowa, 246, 117 N.W., 672, 23 L.R.A. (N.S.), 889, 130 Am. St. Rep., 324.

In this case, it was held that, assuming the renewal note was a forgery, the plaintiff could still recover upon the original note.

"The giving of one note in renewal of another is a continuance of the original indebtedness." Johnson v. Grayson,230 Mo., 380, 130 S.W. 673.

"The renewal of a debt, or obligation therefor, does not amount to a satisfaction or discharge of the original obligation unless there has been some change in the security."Adams v. Branch, 3 Ky. Law Rep., 178.

"Successive renewals of a note without any change in the parties thereto merely extend the time of payment." Bankof Monongahela Valley v. Weston, 159 N.Y., 201,54 N.E., 40, 41, 45 L.R.A., 547.

In Bank v. Hart (Quebec), 2 Dom. L.R., 810, it was held that when a note is renewed, the fact of such renewal does not operate as a novation, and it is immaterial whether the holder sues on the original note or on the renewal note; the remedy on the original note is merely suspended until the maturity of the new one. It appears to follow that, if the renewal note proves to be invalid, recovery may be had upon the debt evidenced by the original note.

Payment of a note by a new note, which proves invalid, does not discharge the original instrument. Ramsdell v.Soule, 12 Pick. (29 Mass.), 126; Williams v. Gilchrist,11 N.H. 535; Hughes v. Wheeler, 8 Cow. (N.Y.), 77; CentralCity Bank v. Dana, 32 Barb. (N.Y.), 296.

Where a new note accepted in satisfaction of a prior note is void, and cannot be legally enforced, the party holding it is remitted back to his original rights as they existed at the time the new security was taken. The consideration failing, the indebtedness remains unaffected. Sheppard v. Hamilton, 29 Barb. (N.Y.), 156.

Where a valid note was given up on being made the consideration of a note which was afterwards avoided as usurious, the surrendered note, or the consideration for which it was given, may be recovered from the maker. Edgell v.Stanford, 6 Vt., 551.

Jones v. City of Camden, 44 S.C. 319, 23 S.E., 141, 143, 51 Am. St. Rep., 819, was a case where the City of Camden was about to issue bonds in renewal of other bonds, the original bonds having been issued for money used in the purchase of a lot and the erection of a town hall. The Court held that the original bonds were issued for a municipal purpose and were valid, and concluded with this statement: "If, therefore, the bonds originally issued were valid obligations of the municipal corporation, as we think they unquestionably were, then bonds issued to pay or renew such valid obligations were alike valid, because issued for a corporate purpose, viz.: to pay or retire a valid debt of the corporation."

In Thackston v. Goodwin, 79 S.C. 396, 60 S.E., 969, the Court held that the county commissioners could, without special act or authority, issue renewal bonds for the purpose of refunding or paying maturing railroad aid bonds.

In Luther v. Wheeler, 73 S.C. 83, 52 S.E., 874, 877, 4 L.R.A. (N.S.), 746, 6 Ann. Cas., 754, the Town of Prosperity issued its note to the Palmetto Bank Trust Co. for $1,000.00, and received thereon $960.00, which was used in erecting a municipal building. The note was renewed several times, and then was purchased by the Bank of Prosperity. The town was about to renew this note when this proceeding was brought in the original jurisdiction to enjoin the council from issuing the renewal note.

The Court held that the council had no authority to borrow money on its promissory note for the erection of the building, but that it did have authority to erect the building and contract a debt for this purpose, and that the town was bound for the repayment of the $960.00 with interest; that while the note was invalid, it was a symbol of the debt, and that the Bank of Prosperity was the owner of the debt, and was allowed to recover $960.00 with interest. The Court said: "Regarding the note entirely void, and therefore eliminated from the transaction, it is still to be considered whether the bank could recover the amount loaned for which the note was given, as money had and received by the town; not because it had been loaned to the town, or because its officers had borrowed it and promised to pay it, but because it was money of another used by the town for legitimate corporate purposes authorized by law. * * * The right to such a recovery is supported by the weight of authority, as will appear by reference to the following citations, though it has been denied, as we have seen, by Courts whose opinions should receive great consideration. 1 Dillon on Munic. Corps., § 126, note, and Sections 460-461; 20 A. E. Ency. Law., 1158; Keener on Quasi-Contracts, 272; Marsh v.Fulton County, 10 Wall., 676, 19 L.Ed., 1040; Salt LakeCity v. Hollister, 118 U.S. 256, 6 S.Ct., 1055,30 L.Ed., 176; Parkersburg v. Brown, 106 U.S. 487, 1 S.Ct., 442,27 L.Ed., 238; Chelsea Savings Bank v. City of Ironwood, 130 F., 410, 66 C.C.A., 230; Allen v. Intendant of LaFayette [89 Ala., 641], 8 So., 30, 9 L.R.A., 497. * * * If the general principles of law above stated are applied to these facts, the conclusion is obvious that the Bank of Prosperity as the equitable assignee of the Palmetto Bank Trust Company could recover against the town the sum advanced as money had and received by the town for its benefit."

In Clark v. Young, 231 Mass. 156, 120 N.E., 397, 398, the Court said: "If the renewal notes were forged they did not operate as payment of the original valid notes. The plaintiff was indebted to the Trust Company in the same amount whether the renewal notes were forged or genuine." Citing Walker v. Mayo, 143 Mass. 42, 8 N.E., 873;Central Nat. Bank v. Copp, 184 Mass. 328, 68 N.E., 334;Bass v. Inhabitants, 192 Mass. 526, 78 N.E., 543.

There is a case from Kentucky, First Nat. Bank v.Gaines, 87 Ky., 597, 9 S.W. 396, which is strongly opposed to the right of the plaintiff who has pitched his action solely upon the renewal notes to recover upon the original notes. It recognizes the right of the assignee of a renewal note to sue upon the original, but, as a matter of pleading, denies the right in the particular case. I think that it is opposed to the South Carolina and other cases cited above.

Under the circumstances, when the ultimate right of the plaintiff to recover is so absolutely clear, the utmost that could be adjudicated against its rights would in this case be to direct a nonsuit instead of a directed verdict. In any event, it should be made clear that an affirmance of the judgment be without prejudice to the plaintiff's right to sue upon the original notes or upon the debt evidenced thereby, or, as was done in the Luther case, as equitable assignee of the Union Bank's claim for money had and received by the county, the proceeds of the original notes.