Stewart & Kernaghan, Inc. v. Fidelity & Deposit Co. of Maryland

• Court: South Carolina Supreme Court
• Writing for the Court: CARTER, Justice.
• Citation: Stewart & Kernaghan, Inc. v. Fidelity & Deposit Co. of Maryland, 169 S.E. 434, 169 S.C. 516 (S.C. 1933)
• Decision Date: 03 May 1933
• Docket Number: 13631.
• Parties: STEWART & KERNAGHAN, Inc., v. FIDELITY & DEPOSIT CO. OF MARYLAND et al.

169 S.E. 434

169 S.C. 516

STEWART & KERNAGHAN, Inc., v. FIDELITY & DEPOSIT CO. OF MARYLAND et al.

No. 13631.

Supreme Court of South Carolina

May 3, 1933

Appeal from Common Pleas Circuit Court of Edgefield County; C.J Ramage, Judge.

Suit by Stewart & Kernaghan, Inc., on behalf of itself and all others similarly situated, against the Fidelity & Deposit Company of Maryland and others. From an adverse decree, the named defendant appeals.

Decree modified and as so modified affirmed.

The decree of the circuit judge requested to be reported follows:

After argument before his honor C.J. Ramage, presiding judge, the following decree was filed by him on September 2, 1931:

I am taking up the claims of People's National Bank and Charles & Beatty. I am adapting to this case the discussion of his honor Judge Dennis in the case of National Loan & Exchange Bank v. Gustafson, found in 157 S. C., pages 235 and 248, 154 S.E. 167.

The alleged liability of the surety company to People's National Bank is based on a note executed by Ashmore to the bank for $4,000. To secure the payment of this note certain estimates due or to become due were assigned to the bank as collateral security.

The testimony shows very clearly that the whole of the funds loaned to Ashmore was for the purpose of carrying on this work and was expended on this road in payment of pay rolls and materials. There is nothing to the contrary in the record.

The surety company claims that when Ashmore made an application to it to write the bond he assigned to the surety company all of his interest in the contract if it was breached by him that therefore it has an assignment prior to that of the bank, and relies for this position on the case of Standard Oil Company v. Powell Paving & Contracting Co., 139 S.C. 422, 138 S.E. 184, and Sumter Trust Company v. Sumter County, 136 S.C. 15, 134 S.E. 209.

I find and hold that when Ashmore made this application to the surety company the following question was asked and answered on the application: "37. With what bank have you arranged a loan for the purpose of handling this contract? No loan. South Carolina National Bank."

Questions 38, 39, 40 are left blank and 41 is answered "No."

I hold that there is such an ambiguity as can be gone into and explained by the testimony of witnesses. In other words the terms of the application leave room for explanation and for the introduction of parol testimony to show what was shown in the Gustafson Case by the application itself.

It is very significant that Furman, the agent whose name runs through the testimony, made no denial or explanation at all. I quote from the testimony some extracts that bear on the question in issue:

" Q. Mr. Ashmore, in the application which you made for the bond, with what bank have you arranged for a loan for the purpose of handling this contract? A. The South Carolina National Bank, but they made no loan.

"Q. That was in your original application? A. Yes.

"Q. Who took this application for this bond? A. Mr. A. C. Furman, Sr.

"Q. Did you get any money from the South Carolina National Bank? A. No. I told Mr. Furman I was going to have to borrow money to do this job and he advised to me go to the People's National Bank and talk it over to Mr. Beacham about what I needed and we did this as best we could. *** He said he would call Mr. Beacham and talked with him over the phone. I told Mr. Furman about the amount I was going to get $4,000.00 or $5,000.00. Mr. Furman made no objection to this. He recommended me to the bank and I got what I asked for. *** I thanked him for referring me to the bank.

Before *** the South Carolina National Bank refused to let me have the money, $3,000.00 or $4,000.00 for payroll to be used on this project. I notified Mr. Furman about this."

Witness Beacham:

"People's Bank assignment dated 5th day of February, 1930. Took different assignments later.

"I know that Mr. Alister G. Furman, Sr., is head of the Alister G. Furman Company. About the time the assignment marked Ex. E. was taken, I had a conversation with Mr. Alister G. Furman, Jr., with reference to loaning money to L. C. Ashmore & Sons on this job. I haven't any particular recollection as to the conversation, except that I knew Mr. Furman had written Mr. Ashmore's bond and being a director in our bank and a member of our finance committee, I consulted him as to making advances to Mr. Ashmore. He recommended that we take this assignment, the one marked Ex. E. and go ahead and make the loan. Mr. Furman knew that Mr. Ashmore's needs would be not far from Four Thousand to Five Thousand Dollars and he recommended the loan of this amount. I told Mr. Furman that Mr. Ashmore's needs would be from four to five thousand dollars. *** Mr. Furman had the conversation relative to the arrangement shortly before the 5th of February, 1930, of the date thereof which may have been ten days or a week. I should not think that it was beyond ten days or a week. I should not think that it was beyond ten days. I suppose I consulted Mr. Furman relative to the matter as a member of our finance committee *** approved that arrangement. We lent him the four thousand dollars in question after that assignment."

L. C. Ashmore:

"Mr. Furman was president of the Alister G. Furman, the agents of the bonding company, and had written several bonds for us. I had a conversation with Mr. Furman about borrowing money to use in financing the job and told him that the estimates would be assigned to secure the loan and he said that he would talk with Mr. Beacham, the president of the People's National Bank, about this and would recommend that the loan be made. I borrowed the money from the People's National Bank. Afterwards I told Mr. Furman that I had secured the loan from the People's National Bank securing it by an assignment of the estimates. I told Mr. Furman that I could not get the money from the South Carolina National Bank; and he suggested that I get it from the People's National Bank. I told Mr. Furman that I would have to borrow from four to six thousand from the People's National Bank. Calvin Moore and I had this conversation with Mr. Furman and went to the bank and talked to Mr. Beacham on Furman's advice. Mr. Furman in the meantime had told us that he would see Mr. Beacham and talk with him. We were to go back in a day or so. I can't say positively whether it was in the next day or the day following and Mr. Beacham asked us if he made the loan, would we assign the estimates. The loan was immediately afterwards. We assigned the estimates before Mr. Beacham ever advanced me money. We gave the assignment before we borrowed the money. The conversation I referred to with Mr. Furman and Mr. Beacham was some two or three days before this assignment was executed. Mr. Beacham told us that he had talked with Mr. Furman, and that he would make the loan, if we would assign the estimates. I made up a formal statement which I gave to Mr. Furman showing that we required from three to six thousand dollars per month on this job. He gave it back to me and asked me to give it to Mr. Beacham, which I did. I think either that afternoon or the next morning, Mr. Beacham loaned us the money and the notes and assignments were executed.

"Question 41 was not asked by the representative of the bonding company at that time. Had no means of financing except the loan."

R. C. Ashmore:

"Question No. 41: 'Have you assigned or will you assign to other than your surety your payments on this or any other contract or any part thereof,' was never asked me by any agent of the company and I never answered No to that question. At the time this application was signed, I knew that the firm L. C. Ashmore & Sons had nothing to borrow money on except an assignment of the estimates. If Question No. 41 had been asked me I would have answered Yes, because L. C. Ashmore & Sons had no other property upon which they could borrow money except an assignment of estimates.

"L. C. Ashmore testified that if Question 41 had been asked him he would have answered Yes. The assignment of the estimates was the only security I had to look to at the time. My other property was mortgaged. My equipment had been mortgaged to Charles & Beatty."

The above appears as strong or even stronger than what is found in the Gustafson Case in the application.

The case of Powell v. Insurance Company in 97 S.C. 375, 81 S.E. 654, shows that the surety company is bound by the acts of its agent in the scope of his agency and duties. I find that the general agent of the surety company consented to the loan and to the assignment and the surety company is bound by his knowledge and acts as set out.

I find that the surety company waived the right to claim under its assignment in preference to the People's Bank and is now estopped to set up its assignment as against that of People's Bank, which is hereby held to be prior to the assignment taken in the application to the surety company.

In this respect the claim of People's Bank differs from the case of Standard Oil Company v. Powell Paving & Contracting Co., 139 S.C. 442, 138 S.E. 184, and Sumter Trust Company Case, 136 S.C. 15, 134 S.E. 209, where it was held that the assignment to the surety company took precedence over the assignment made to the bank for the reason that the surety company's assignment related back to the date of the application whereas in the case at bar, the surety company waived its priority and is estopped to assert such priority by and under the acts, conduct, and knowledge of its general agent.

I hold that Ashmore had the right under the facts and circumstances of this case to make an assignment of his estimates for the purpose of financing his work to which the surety company impliedly...