Opinion
13721
December 21, 1933.
Before JOHNSON, J., Pickens, January, 1930. Affirmed.
Action by Pickens County against J.L. Love, as receiver of the Easley Loan Trust Company and others. From a decree confirming a special referee's report and granting plaintiff a judgment against defendants receiver and others, they appeal.
The report of the special referee is as follows:
The undersigned, to whom the above-entitled case was referred as special referee, begs leave to report that he has held a reference and taken the testimony in this case. The reference was begun on January 8, 1932, and continued from time to time until March 3, 1932, and the arguments were made on March 26, 1932. The pleadings, testimony, and exhibits are transmitted herewith.
This is an action brought by Pickens County against the defendants herein named for the purpose of reforming a certain bond (Exhibit 1) executed by the defendants to the Maryland Casualty Company, and asking for judgment thereon in the sum of $72,350.18, with interest thereon from November 9, 1929. The bond was given by the Easley Loan Trust Company and signed by Ralph H. Smith, Lloyd H. Smith, A.F. Wyatt, L.J. Smith, and Ida H. Smith, as sureties. The name of Jasper Oates appears on the bond as a surety, but in another case it was decided that Jasper Oates did not sign the bond, so he is not interested in this action. The defendants by their answer admitted Paragraphs 1, 3, and 4 of the complaint, and at the beginning of the reference before me admitted Paragraphs 2 and 7 of the complaint. This leaves before the referee the issue of whether or not the bond should be reformed and judgment given as prayed for in the complaint.
It is admitted that the Easley Loan Trust Company was placed in the hands of J.L. Love, Esq., as receiver, on the 9th day of November, 1929, and that Ralph H. Smith and Lloyd H. Smith were duly adjudged bankrupt by the United States District Court for the Western District of South Carolina on the 16th day of December, 1929, and that Cothran C. Graves was duly elected and appointed trustee of the bankrupt estates.
The bond sued on in this action (Exhibit 1) is on a printed form which has printed in it "Maryland Casualty Company" as the obligee. The plaintiff contends that this should be reformed to read "Pickens County" according to the agreement and understanding of all the parties, and that said mistake was a mutual mistake by reason of the fact that the blank from of Maryland Casualty Company was used in the preparation of said bond, and that the name "Maryland Casualty Company" was not erased and the name "Pickens County" inserted in lieu thereof by reason of the mutual mistake of the parties and of the scrivener who drafted the bond. The defendants contend that the bond truly represents the agreement of the parties, and that said bond was given to the Maryland Casualty Company to protect said company in the event that it should become liable on another bond in which said Maryland Casualty Company was surety for Jesse D. Gillespie, County Treasurer of Pickens County.
It appears from the testimony, and I find, that Easley Loan Trust Company was the successful bidder on the loan to Pickens County, and that the bank was to receive, and did receive, the deposits of the county as a result of the loan. All the defendants concerned herein were either officers or directors of said Easley Loan Trust Company. It further appears that Jesse D. Gillespie, County Treasurer of Pickens County, gave Lloyd H. Smith, who was at that time president of the Easley Loan Trust Company, the blank form of bond which was filled out by a Mr. Davenport under the direction of Lloyd H. Smith. It further appears that the said Jesse D. Gillespie did not have any conversation or agreement with the other sureties on the bond, and that Lloyd H. Smith took the bond to the other sureties for their signatures. When the bond was returned to Mr. Gillespie, he states that he did not read it but merely looked at the signatures. Mr. J.T. McKinney, who was County Supervisor for Pickens County at that time, also testified that he did not read the bond. There is not very much testimony as to what occurred between Jesse D. Gillespie and Lloyd H. Smith at the time the blank bond was given to Smith, or at the time the bond was returned by Smith to Gillespie. Gillespie's testimony is to the effect that the bond was given for the purpose of protecting the money that Pickens County had in the Easley Loan Trust Company, and, further, that the agreement was that it be made to Jesse D. Gillespie, County Treasurer. (Page 5 of Gillespie's testimony.) On cross examination (page 9 of Gillespie's testimony) he testified that that form of bond was required by the bonding company, and that he was carrying out its instructions in asking Mr. Smith to fill out the bond that was executed. Lloyd H. Smith testified (page 25 of his testimony) that Gillespie told him that the Maryland Casualty Company required that the bond be made out on its form, and, after his conversation with Gillespie, it was his intention to draw the bond in favor of the Maryland Casualty Company. None of the other defendants were present at the time this conversation took place.
The plaintiff seeks reformation of the bond. Under the authorities, in order to reform a written instrument it is necessary to show that there was a prior agreement which through mutual mistake was not correctly set forth in the written agreement.
In Newsom v. Norwood, 127 S.C. 162, 120 S.E., 846, 847, the Court said: "In order to secure the reformation of a contract on the ground of mutual mistake, it must appear that the omission or insertion was of some element material to and affecting the subject-matter or the terms and stipulations of the contract, and inconsistent with those of the parol contract which necessarily preceded it." See, also, Blassingame v. Greenville County, 150 S.C. 167, 147 S.E., 848; Jumper v. Queen Mab Lumber Company, 115 S.C. 452, 106 S.E., 473, 475.
In the case of Jumper v. Queen Mab Lumber Company, supra, the Court enumerates those instances in which a contract may be reformed: "A contract may be reformed or rescinded, as the justice of the case may require, upon the ground of mistake, under these circumstances: (1) Where the mistake is mutual and is in reference to the facts, or supposed facts, upon which the contract is based; (2) where the mistake is mutual and consists in the omission or insertion of some material element affecting the subject-matter or the terms and stipulations of the contract, inconsistent with those of the parol agreement which necessarily preceded it; (3) where the mistake is not mutual, but unilateral, and has been induced by the fraud, deceit, misrepresentation, concealment, or imposition in any form of the party opposed in interest to the reformation or rescission, without negligence on the part of the party claiming the right; (4) where the mistake is not mutual, but unilateral, and is accompanied by very strong and extraordinary circumstances, showing imbecility or something which would make it a great wrong to enforce the agreement, sustained by competent testimony of the clearest kind. Kennerty v. Etiwan Co., 21 S.C. 226, 53 Am. Rep., 669; Forrester v. Moon, 100 S.C. 157, 84 S.E., 532."
I do not find that there was any fraud, deceit, or misrepresentation in the case at bar, and, if plaintiff is entitled to the reformation asked, it must make it out under Paragraphs (1) and (2) above.
In order to reform a contract, the evidence must be clear and convincing. The evidence in this case does not convince me that there was a prior agreement such as the plaintiff seeks to establish in this action. The plaintiff has the burden of proving its case, and the evidence produced at the reference does not convince me that it has done so. From the testimony I am satisfied that Gillespie handed Lloyd H. Smith a blank form of bond of Maryland Casualty Company, and, when it was returned to Gillespie, he merely looked at the signatures. There is not sufficient evidence to convince me that Gillespie had a clear understanding about the bond, and what dealings he had were with Lloyd H. Smith, and this certainly could not be held against the other defendants as there is not sufficient proof of the agency of Lloyd H. Smith. On this issue of the case I find that the plaintiff has failed to make out a sufficient case for reformation of the bond, as all of the parties can read and write and entered into a solemn written agreement.
At the close of the plaintiff's testimony, plaintiff moved to amend the complaint to conform to the facts proven by inserting an additional cause of action to the effect that, although the bond was executed to the Maryland Casualty Company, it was a contract which was solely for the benefit of Pickens County, and in which the Maryland Casualty Company has no interest, and seeks to recover on the ground that this action is for the benefit of Pickens County for whose benefit the contract was made.
Under Section 494 of Volume 1 of the 1932 Code of South Carolina, the Court may amend any pleading or process when the amendment does not substantially change the claim or defense by conforming the pleading or proceeding to the facts proved. And, under Section 654 of Volume 1, 1932 Code, a master or referee had the same right to allow amendments.
In Mason v. Johnson, 13 S.C. 20, the Court held that referees have the same power as the Courts to allow amendments to the pleading. To the same effect see Beall Co. v. Weston, 83 S.C. 491, 65 S.E., 823.
I think it is proper to allow the amendment in this case as it is in furtherance of justice, and in order to conform the issues to the proof. I do not think the defendants were taken by surprise, and do not see where any additional testimony could have been produced by them. The defendants had ample opportunity to defend on this issue, as the reference had not been closed at the time the motion for the amendment was made, and the defendants did not ask for a continuance in order to produce additional testimony.
As above mentioned, all of the defendants were officers and directors of the Easley Loan Trust Company. They knew that the reason the bond was given was to protect the deposit of Pickens County in the bank, and that the bank was to get the benefit of the deposit. They all admitted on cross examination, although at times the testimony is somewhat evasive, that they intended to protect whoever was entitled to be protected by that bond, and that they knew that Pickens County was to be protected indirectly. This bond was evidently executed for some purpose; from the testimony I conclude and find that the bond was given to protect Pickens County on its deposit in the Easley Loan Trust Company. The bond recites: "Whereas, Jesse D. Gillespie has been elected or appointed, and has qualified, or is about to qualify, as treasurer of the County of Pickens, in the State of South Carolina; and as such treasurer, at the special instance and request of the said obligors, and on the security hereof, has deposited and may hereafter from time to time deposit with, deliver to, or place in charge of the said principal, hereinbefore named, certain moneys for the custody of which the said treasurer is or may be responsible, either as treasurer or in any other capacity arising out of and by virtue of his position as treasurer, etc. * * *"
Mr. J.T. McKinney, supervisor of Pickens County (page 11 of his testimony), testified that Mr. Lloyd H. Smith stated that: "He would give a bond for the loan and Pickens County was borrowing the money." On page 6 of Lloyd H. Smith's testimony, he testified that it was his intention to execute a bond to indemnify Pickens County against loss until his conversation with Mr. Gillespie. Mr. Smith testified (page 32 of his testimony): "My idea was that it did not make any difference to us which way it went." He was referring to Pickens County and the Maryland Casualty Company. The undisputed testimony shows that the Maryland Casualty Company claims no interest in the bond.
All of the defendants knew that the bond was made for the benefit of Pickens County, and admitted that it was given to protect whoever was entitled to protection.
I find that the bond was made for the benefit of Pickens County, and that it is the real party in interest and is entitled to recover. In the case of General Motors Acceptance Corporation v. Hutto, 136 S.C. 207, 134 S.E., 232. the Court held that suit may be instituted on a bond by the person for whose benefit such bond was given, as such person is the real party in interest within the meaning of this section, even though the bond does not expressly name the obligee. The Court said on page 234 of 134 S.E., 136 S.C. 207: "`Every action must be prosecuted in the name of the real party in interest,' and the real party `in interest' here is undoubtedly the plaintiff. The bond provided that the judgment should be paid, and any holder of that judgment would have the right to sue and recover on it, if it should be breached. It is well settled that parties may contract for the benefit of third persons. (Italics mine.) Brandt on Suretyship and Guaranty (3d Ed.) § 154; Brown v. O'brien, 1 Rich., 268, 44 Am. Dec., 254; Thompson v. Gordon, 3 Strob., 196; Thomas v. Atkinson, 94 S.C. 125, 77 S.E., 722; Harris v. Ry. Co., 31 S.C. 87, 9 S.E., 690; Ancrum v. Water Co., 82 S.C. 284, 64 S.E., 151 [21 L.R.A. (N.S.), 1029]. And this is true where the parties are not named in the obligation, and the obligation is a sealed instrument. 9 Corpus Juris, 86, § 152; Mack Mfg. Co. v. Mass. Bond. Ins. Co., 103 S.C. 55, 87 S.E., 439."
There is no doubt in my mind that Pickens County is the real party in interest in this action, and, apart from the amendment above allowed, I find it should be entitled to recover under Section 397 of Volume 1 of the Code of South Carolina.
I therefore recommend that the plaintiff have judgment against the defendants, A.F. Wyatt, L.J. Smith, and Ida H. Smith, in the sum of $72,350.18, together with interest thereon from November 9, 1929, and costs.
Respectfully submitted,
JOHN L. PLYLER, Special Referee.
Greenville, S.C.
May 24, 1932.
The decree of Judge Johnson is as follows:
This case comes before me on exceptions filed by plaintiff and defendants, L.J. Smith, Mrs. Ida H. Smith, and F.H. Wyatt, to the report of John L. Plyler, as special referee.
The action was brought to recover the sum of $72,350.18 upon a bond executed by Easley Loan Trust Company to secure a deposit of Pickens County of county funds in that bank. The original deposit was approximately $125,000.00. The Act of 1922 (Act Feb. 16, 1922, 32 St. at Large, p. 776) required the county treasurer to obtain bond when a deposit of county funds was made. The name "Maryland Casualty Company" was printed in the bond as obligee. The complaint seeks a reformation of the bond, but alleges also that the bond was given "for the purpose of protecting Pickens County in its deposits in said Easley Loan Trust Company through its Treasurer Jesse D. Gillespie, and to indemnify and hold harmless said Pickens County against any and all loss by reason of said deposits," and asks for judgment against the defendants.
To the finding of the special referee that the facts proved did not warrant a reformation of the bond the plaintiff excepts; to the finding "that the bond was made for the benefit of Pickens County, and that it is the real party in interest and is entitled to recover," the three defendants above named except. Full and able argument upon the questions involved was made.
Upon careful consideration of the testimony and the arguments, I find that the following facts are clearly established by the evidence:
A short time before the execution of the bond sued on, Pickens County had received payment of a large sum in payment for road bonds, which, with tax collections, amounted to approximately $125,000.00.
In 1922 there was passed "An Act to Provide for the Security of all Public Funds of Pickens County Deposited in Banks," which Act provided: "That after the approval of this Act the County Treasurer of Pickens County, be and he is hereby required to protect all funds coming into his hands and deposited with any bank by requiring such bank receiving such deposits to secure the safety of the same by entering into bond therefor in such amount as shall be required by the County Treasurer of said county as in his opinion will be necessary to protect the county from loss of said funds by reason of failure of any such bank, or otherwise." Section 1.
On September 7, 1928, the county commissioners of Pickens County awarded to Easley Loan Trust Company the deposit of the funds above described. L.H. Smith, president of the bank, and one of the signers of the bond, personally conducted negotiations for the bond, was present at the meeting when the award was made, and undertook to procure the required bond. He was given the blank form of the bond sued on by the county treasurer. Smith had not only executed to Pickens County previously two other depositary bonds, but was also a lawyer and was familiar with the Act requiring the execution of the bond. When the forms were given to Lloyd Smith, it was clearly understood and agreed between him and Gillespie, county treasurer, and McKinney, supervisor, that the bond was to be executed to Jesse D. Gillespie, county treasurer, and was to protect the deposit of Pickens County in the bank of which Lloyd Smith was president and L.J. Smith, Mrs. Ida H. Smith, and F.H. Wyatt were directors. All except Mrs. Ida H. Smith had previously signed a depositary bond of the bank for $50,000.00, in which Jesse D. Gillespie had been named as obligee.
In the blank form of bond taken by Smith the name of the obligee as printed therein was "Maryland Casualty Company." The bond was filled out under the direction of Smith, who, notwithstanding his knowledge and his agreement with the county officials, did not change the name of the obligee but left it as it was printed. In all other parts of the bond the name "Jesse D. Gillespie" was inserted. The bond was then taken by Lloyd Smith to L.J. and Mrs. Ida Smith and to A.F. Wyatt. Although, as found by the Master, in which finding I concur, the testimony of these defendants was "evasive," yet they do admit that they read, or had read to them, the bond and signed it; that they were familiar with the law which required the treasurer to secure a bond; that they knew a deposit was being made by Pickens County in the bank of which they were directors; that the law required the deposit to be protected by a sufficient bond; and that the bond signed by them was required to get the deposit; and that it was given to protect that deposit and for no other purpose. The only reason given by these signers in their testimony to relieve them from liability for the execution of the bond sued upon was that they thought that the official bond executed by Gillespie as county treasurer and upon which Maryland Casualty was surety rendered the casualty company liable for any loss which might be sustained by Pickens County on account of the deposit, and the bond signed by them was to protect the casualty company in the event that company had to pay such loss.
The facts proved are in my opinion entirely inconsistent with the position taken by defendants. As directors, the defendants either had actual knowledge, or were in law charged with knowledge, of the following facts: (a) That the bank was obtaining the deposits of the funds of Pickens County; (b) that the statutory law required the county treasurer to secure the safety of such deposits from loss by an adequate bond executed by the bank; (c) that the official bond of the county treasurer, upon which bond only the casualty company was surety, did not indemnify Pickens County for the loss of the deposits; (d) that such bond was liable under the Act of 1922 only for the failure of the county treasurer to obtain the bond required by the Act; (c) that no depositary bond for the protection of the bank had been executed or filed upon which Maryland Casualty Company was security; (f) that the bond signed was intended to protect Pickens County against loss sustained by the county by reason of the deposits made; (g) that, if the bond signed did not so protect the county, it had no bond for the protection of such deposits; (h) that, if the bond signed did not so protect such deposits, the law requiring such protection had not been complied with.
From the deductions made, coupled with the admission of all the defendants named that the purpose of the bond was to obtain and protect the county's deposits, it must conclusively follow that there is a direct liability from those defendants to the plaintiff for the amounts remaining on deposit to the credit of Pickens County when the bank closed, together with interest on said deposits at the legal rate.
I am not convinced that the facts proved warrant a reformation of the bond under the law as declared by the Supreme Court, and for those reasons I concur in the finding of the special referee that the right to reformation has not been established.
Apart, however, from the question of reformation, the findings of the master and the additional findings herein made show that the bond was made for the benefit of Pickens County, and that it is the real party in interest therein. The cases of General Motors Acceptance Corporation v. Hutto, 136 S.C. 207, 134 S.E., 232, Johnson v. Express Company, 163 S.C. 191, 161 S.E., 473, and the cases cited therein, are ample authority for holding that Pickens County is the one for whose benefit the bond herein was given, is the one intended to be protected, is the real party in interest, and as such has the right to institute this action and recover thereon.
Objection to a recovery on this ground is made by the contention of defendants' counsel that the allegations of the complaint are not sufficient to warrant a recovery thereunder and that the amendment sought by plaintiff's counsel at the reference should be denied. An examination of the complaint, particularly the allegations of paragraphs 5, 6, 7 and the prayer thereof, shows that there are ample allegations that Pickens County is the real party in interest to enable it to maintain this action. An examination of the complaint convinces me that two causes of action are stated therein, one for reformation, and the other, that plaintiff, as the real party in interest, is entitled to judgment as the person for whose benefit the bond was executed. If defendants wished, on the last cause of action, to protect their rights to a trial by jury, they could easily have accomplished this by requiring the two causes of action to be separately stated, and by making such motions as would be proper.
Objection was made to the allowance of plaintiff's motion to amend the complaint. The conclusions above stated show that no amendment was necessary. If, however, an amendment was necessary, it was allowable for the reason stated by the special referee, and also under the authority of Henderson v. Rice, 160 S.C. 307, 158 S.E., 258.
Defendants also urge that plaintiff's right to recover is prevented by the negligence of the county officials in not reading the bond when, after being signed, it was returned to them. If the rights of the officials as individuals were being considered, there would be much merit in this contention. Where, however, Pickens County, a branch of the state government, is sought to be affected by the acts of these individuals, an entirely different situation arises.
In Baker v. State Highway Department, 166 S.C. 481, 165 S.E., 197, 198, plaintiff sought to enjoin the highway department from interference with the operation of his automobile, upon the ground that he had paid the automobile license tax by cashier's check, which was not paid when it was presented because of the closing of the bank issuing the check. In holding that plaintiff was not entitled to an injunction, the Court, among other things, held that a public official, charged by law with the collection of taxes, etc., due the State, cannot accept anything but money in payment thereof, and further, quoting from syllabus 11: "All persons are held to have notice of extent of public officer's powers, which are derived from statutes, and hence deal with him at their peril as to matters not within scope of his authority."
It is therefore ordered, adjudged, and decreed (1) that the report of the special referee herein filed, together with the findings of fact and conclusions of law therein contained, including the ruling of the special referee in allowing plaintiff's amendment to the complaint, be, and the same is hereby, confirmed; (2) that plaintiff, as the real party in interest in this action, and as the one for whose benefit the contract sued upon was made, have judgment against the defendants L. J. Smith, Mrs. Ida H. Smith, A.F. Wyatt, and J.L. Love, as receiver of Easley Loan Trust Company, for the sum of $72,350.17, together with interest thereon from November 9, 1929, the judgment against J.L. Love, as receiver of Easley Loan Trust Company, to be credited by the amount of dividends paid or to be paid to plaintiff by the said receiver.
Messrs. A.P. DuBose and C.G. Wyche, for appellant, cite: As to amendment of complaint: Sec. 494, Code 1932; 21 R.C.L., 581; 115 S.C. 17; 104 S.E., 308; 111 S.C. 380; 80 S.C. 213; 61 S.E., 397; 79 S.C. 270; 60 S.E., 689; 54 S.C. 110; 32 S.E., 73; 49 S.C. 513; 27 S.E., 485; 146 S.C. 207; 81 S.C. 574; 62 S.E., 1113; 130 S.C. 330; 125 S.E., 910. Court of Equity cannot change agreement between parties: 129 Cal., 662; 62 Pac., 212; 136 S.C. 207; 163 S.C. 191; 134 S.C. 249. As to negligence of county official: 150 S.C. 167; 147 S.E., 848; 2 Strob. Eq., 148; 49 Am. Dec., 664; 91 S.C. 332; 74 S.E., 750; 91 Fed., 833 (C.C.A.); 242 Fed., 350 (C.C.A.); 258 U.S. 6; 42 Sup. Ct., 225; 66 L.Ed., 433; 115 S.C. 426; 106 S.E., 157; 166 S.C. 481; 165 S.E., 197. Estoppel: 100 S.C. 452; 84 S.E., 1006; 168 S.C. 542.
Messrs. J.D. Wyatt and Blythe Bonham, for respondent, cite: Where bond for benefit of county it is real party in interest and may sue thereon: 103 S.C. 55; 87 S.E., 439; 136 S.C. 144; 134 S.E., 263; 52 A.L.R., 259; 82 S.C. 284; 64 S.E., 151; 21 L.R.A. (N.S.), 1029; 1 Rich., 270; 44 Am. Dec., 254; Dud., 332; 136 S.C. 207; 134 S.E., 232; 3 Strob., 196; 94 S.C. 125; 77 S.E., 722; 31 S.C. 87; 9 S.E., 690; 2 Corp. J., 86; 62 S.C. 222; 40 S.E., 162; 89 Am. St. Rep., 893; 69 S.C. 338; 48 S.E., 269; 139 S.C. 411; 138 S.E., 184; 145 S.C. 177; 143 S.E., 21; 163 S.C. 191, 199.
December 21, 1933. The opinion of the Court was delivered by
The decree of his Honor, Circuit Judge Johnson, appealed from by certain of the defendants, is satisfactory to this Court. That decree and the report of the special referee will be reported.
In addition to the reasoning for the conclusion reached by the Circuit Judge, we are of the opinion that his holding may be sustained upon one further ground not adverted to in the decree. Undoubtedly, it was the intention of the county treasurer and the sureties on the bond of the bank, sued on in this action, that the bond should be given according to, and in conformity with, the requirements of the special statute as to Pickens County, requiring the taking of a bond by the county treasurer for bank deposits. The intention and purpose of the parties being to comply with the statute, technical defects and errors in the writing of the bond do not invalidate the instrument. When a bond is given in compliance with the provisions of a statute, the Court will hold liberally the wording and terms of the bond to carry out the statutory purpose. See Plumley v. Stewart et al., 165 S.C. 316, 163 S.E., 777.
The judgment of this Court is that the decree of the lower Court be affirmed.
MESSRS. JUSTICES STABLER, CARTER and BONHAM and MR. ACTING ASSOCIATE JUSTICE W.C. COTHRAN concur.