Burch v. Ashburn, 1141

• Decision Date: 18 January 1988
• Docket Number: No. 1141,1141
• Citation: 368 S.E.2d 82,295 S.C. 274
• Parties: Barbara K. BURCH, Respondent, v. Thomas E. ASHBURN, Appellant. . Heard
• Court: South Carolina Court of Appeals

Page 82

368 S.E.2d 82

295 S.C. 274

Barbara K. BURCH, Respondent, v. Thomas E. ASHBURN, Appellant.

No. 1141.

Court of Appeals of South Carolina.

Heard Jan. 18, 1988.

Decided April 25, 1988.

Robert H. Gwin, III of Thompson, Henry & Gwin, Myrtle Beach, for appellant.

Irby E. Walker, Jr., and Terry W. Smith, Conway, for respondent.

BELL, Judge:

Barbara K. Burch brought this suit against Thomas E. Ashburn for payment of a promissory note. Ashburn denied liability on the note and counterclaimed for damages for breach of a related partnership agreement between the parties. The case was tried to a jury. At the close of the evidence, the circuit court directed a verdict for Burch on the note and entered judgment thereon for $5,589.17 plus interest. The court also directed a verdict for Burch on Ashburn's counterclaim. Ashburn appeals. We affirm the judgment on the note, but reverse the judgment on the counterclaim.

During the summer of 1984, Burch employed Ashburn as sales manager for Burch Pool Management, a commercial swimming pool maintenance service which she operated as a sole proprietorship. The business consisted of servicing swimming pools at resort hotels in the Myrtle Beach area and running poolside concession stands for the sale of suntan oils and other products at each location. During the 1984 season, Burch had contracts at nine locations.

Near the end of the 1984 season, Burch and Ashburn discussed becoming partners in the business. On October 16, 1984, Ashburn executed and delivered to Burch his promissory note for $6,500.00 in exchange for a one half interest in the business of Kay Burch d/b/a Burch Pool Management. The note is negotiable in form. It contains no reference to the Partnership Agreement. On its face it is an unconditional promise to pay $6,500.00 in four installments with the full balance due on July 30, 1985. Ashburn made the first payment at the time the Partnership Agreement was signed. The remaining payments were due on May 30th, June 30th, and July 30th, 1985. Ashburn failed to make these payments.

The same day the note was given, the parties executed a Partnership Agreement, agreeing to operate the business together as a general partnership. The Agreement required Ashburn to assume the duties of managing the business; it obligated Burch to use her best efforts to procure contracts and increase sales and sales locations for the business. The Agreement recited that the initial capital contribution of both parties consisted of retail outlets (suntan huts), contracts, supplies, equipment, and goodwill of the business formerly known as Kay Burch d/b/a Burch Pool Management. The parties also executed a Bill of Sale transferring title to these assets from Kay Burch d/b/a Burch Pool Management to Burch Pool Management, a South Carolina general partnership.

The stated consideration for the Partnership Agreement is the mutual covenants, conditions, and promises contained therein and a further consideration of Five Dollars paid by each party to the other. The note is not mentioned as part of the consideration for the Agreement. A later paragraph of the Agreement, however, acknowledges "... that Ashburn is purchasing a one half interest in a business from Burch, for $6,500.00, said sum represented by a promissory note of even date herewith." The Agreement also provides that in the event of a default on the note, the partnership will terminate.

I.

Ashburn contends he has a complete defense to the note, because Burch breached her duty to use her best efforts to procure maintenance contracts and retail locations for the business. He points to the uncontested fact that Burch procured only one contract for the 1985 season, whereas she obtained nine contracts for the 1984 season.

Ashburn premises his legal argument on the common law of contracts. Since the note is a negotiable instrument, we analyze the case under Article Three of the Uniform Commercial Code, Sections 36-3-101 through 36-3-805, Code of Laws of South Carolina, 1976.

As between the promisor and the named payee on a note, the terms of the note may be modified or affected by any other written agreement executed as part of the same transaction. See Code Section 36-3-119(1). However, the terms of a separate agreement will not be read into a note so as to destroy its negotiability nor to limit the rights of a holder in due course who took without notice of any claims, defenses, or limitations arising from the separate agreement. Id., subsecs. (1) and (2); See Northwestern Bank v. Neal, 271 S.C. 544, 248 S.E.2d 585 (1978). Likewise, a separate agreement may not be used to contradict the unambiguous terms of the note. Northwestern Bank v. Neal, supra. And the terms of a separate agreement which is not intended to affect the note at all may not be used to defeat enforcement according to its own tenor, even though the note and the agreement arise from the same transaction. Id.

In this case, the note and the Partnership Agreement were executed as part of the same transaction. Thus, they should be read together to ascertain the intent of the parties. On its face, the note is an unconditional promise to pay specified sums of money on the due dates. It makes no reference whatever to performance of the Partnership Agreement. The Agreement does acknowledge execution of the note, but it simply states that the note represents the purchase price Ashburn is paying to Burch for one half interest in "a business." Significantly, there is no statement that the note is consideration for the Partnership Agreement. The only provision that ties the note and the Agreement together states that the partnership will terminate if Ashburn does not pay the note. Thus, payment of the note is made a condition for continuing the partnership. In contrast, no term of the Agreement conditions payment of the note upon performance of any covenant or promise in the Agreement. Since the parties expressed no intention to make the obligation of the note dependent upon performance of the Agreement, we hold that the contemporaneous execution of the two writings does not affect the note, which is enforceable according to its tenor without regard to any breach of the Partnership Agreement.

II.

Ashburn also raises the defense of failure of consideration to avoid his obligation on the note. Failure of consideration is a defense as against any person not having the rights of a holder in due course. Code Section 36-3-408. We need not...