I think that the decree of his Honor, Judge Memminger, should be affirmed, and therefore respectfully dissent from the contrary conclusion announced in the opinion of Mr. Justice Blease, for the reasons which follow.
This is an action to foreclose a certain mortgage executed by the defendant Cheraw Ginning Company to the plaintiff, Buckeye Oil Company, covering certain real estate and ginning machinery located in the Town of Cheraw, to secure the payment of three notes of $4,000 each, dated August 21, 1919, and due, respectively, in one, two, and three years from date. The controversy is as to the liability of the indorsers upon the first of these notes, the appellants P.B. Huntley, C.S. Lynch, P.J. Williams, E.W. Laney, and G.W. Duvall.
The facts of the case appear to be as follows: In July, 1919, the five gentlemen whose names appear as indorsers upon the first note for $4,000, dated August 21, 1919, and *Page 266 due August 21, 1920, united to establish a ginnery in the Town of Cheraw, upon a lot which belonged to one of them, P.B. Huntley. A corporation was organized under the name of Cheraw Ginning Company, they being the stockholders. The plaintiff, Buckeye Cotton Oil Company, was at the time a corporation located in Charlotte, N.C. It was a subsidiary corporation of Procter Gamble Company, extensive dealers in and consumers of cotton seed oil.
The Cheraw Ginning Company applied to the Buckeye Cotton Oil Company for a loan of $12,000, with which to organize and install the ginnery. The representative of the Buckeye Company appraised the property of the Cheraw Company at $8,000, and declined to lend more than that amount upon the notes of the Cheraw Company secured by a mortgage of the plant. After some negotiations, the Cheraw Company appears to have labored under the impression that the Buckeye Company had agreed to lend $12,000 upon that security, and prepared and executed notes and mortgage accordingly, and drew upon the Buckeye Company for the amount, transmitting the notes and mortgage. Upon presentation of the draft, the Buckeye Company declined to honor it, upon the ground that the notes had not been indorsed by the directors, the gentlemen named. A conference was then held, about August 21, 1919, at Cheraw, between the gentlemen and one Peeples, a representative of the Buckeye Company. He insisted that the notes be indorsed by the directors; they refused and the conference broke up. Later in the day it was proposed by the directors that they indorse the note due August 21, 1920. Peeples declined to close the matter upon those terms without authority from the Charlotte office. The parties are sharply at variance as to what happened thereafter, and particularly as to the conditions upon which the indorsements were made upon the first note. The defendants contend, *Page 267 and offered parol evidence to show, that after they made the proposition to indorse only the one note, Peeples left the bank where the conferences had been held, for the avowed purpose of communicating by telephone with the Charlotte office in reference to the proposition which had been made; that in about an hour and a half Peeples returned, accepted the proposition, and the transaction was closed by the delivery to him of the three notes and mortgage, the first being indorsed by the defendants; that the draft of $12,000 was thereafter paid in due course. The defendants also offered parol evidence to show that their indorsement of the first note was specifically stated and agreed to have been made simply as a guaranty that the property would bring at foreclosure sale at least $4,000; that their liability as indorsers should be limited to that extent.
The plaintiff, on the other hand, contends, and offered parol evidence to show, that no such agreement limiting the effect of the indorsements on the first note was entered into; on the contrary, that it had in the first instance refused to advance more than $8,000 upon the security of the property, and had insisted that, if $12,000 was to be advanced, the defendants must indorse all three of the $4,000 notes; that it was finally agreed that $12,000 would be advanced upon the condition that the defendants would indorse the first note, which should be considered as additional security to the mortgage upon the property, evidently intending that, if the first note should be paid at maturity, the plaintiff was willing to risk the security of the property for the other two notes.
The record is singularly barren of dates. The date of the commencement of the action does not appear, nor the date of the order of reference, nor of the taking of testimony, nor of the hearing before the Circuit Judge, nor of the order or sale for foreclosure. *Page 268
It appears that the case was referred to L.C. Wannamaker, Esq., as special referee. He filed a report dated April 12, 1924, holding that the defense of all the defendants, except C.S. Lynch, had been sustained; that the plaintiff was entitled to judgment against the defendant corporation upon all of the notes and for foreclosure of the mortgage; that, in case the proceeds of sale should be insufficient to satisfy the first note, the plaintiff have judgment against all of the individual defendants, except C.S. Lynch, for the deficiency; and that, if the proceeds should be insufficient to pay the entire debt, the plaintiff have judgment against the corporation and Lynch for the deficiency.
Exceptions to this report were heard by his Honor, Judge Memminger, who filed a decree dated July 5, 1924, reversing the conclusions of the special referee, holding that the indorsement of the first note was intended as additional security to the mortgage, and rendering judgment against all of the indorsers for the amount of the first note, with interest and attorney's fees; ordering foreclosure and sale; directing that the proceeds of sale be applied first to the two unindorsed notes; and providing that, after payment of the first note by the indorsers, they be subrogated to the rights of the plaintiff in the surplus, if any, remaining after payment of the second and third notes. From this decree the defendants, indorsers, have appealed.
At a time not stated in the record, but presumably after the decree of Judge Memminger, which is dated July 5, 1924, the sale under foreclosure was had, at which the property was bid in by the plaintiff for $8,000. I assume that the plaintiff has complied with its bid and received titles to the property, although it is not so stated in the record for appeal.
The matter of controversy upon this appeal is the application of the proceeds of sale — whether the plaintiff is entitled to have those proceeds, which are insufficient to fully discharge *Page 269 the second and third notes, applied to those two notes, leaving the first note entirely unpaid, and to enter up judgment against the indorsers of that note for the amount of it, with interest and attorney's fees, or whether the defendants are entitled to have those proceeds, which are sufficient to discharge the first note, applied to that note, in discharge of the liability of the indorsers.
This case exemplifies the wisdom of the rule of law which excludes parol evidence varying the terms of a written instrument. The individual defendants and their attorney, men of the very highest probity of character, testify to the circumstances attending the indorsement of the note, and in the most positive and detailed manner sustain the contention of the defendants, that it was intended only to guarantee that the property mortgaged at foreclosure sale would bring at least the amount of the note which they indorsed, $4,000.
Opposed to their statements, the plaintiff urges the lapse of four years' time, the uncertainty and fallibility of human memory, the changed conditions when flattering prospects have been rudely shattered, the unreasonableness of the acceptance by the plaintiff of a proposition which added nothing of security to the notes, and the positive testimony of equally credible witnesses that the expressed intention of the indorsement was to add security to that supplied by the mortgage.
I think that, if objection had been interposed to the parol evidence offered by the defendants, to show that the indorsement was not what it legally imported to be, the evidence should have been excluded.
Assuming that the defendants were accommodation indorsers (Bank v. Ashley Corp., 133 S.C. 304;130 S.E., 890. Bank v. Bickel [Ky.], 137 S.W. 790), the extent of their legal liability is fixed by the Negotiable Instruments Law, Vol. 3, Code of 1922, § 3717:
"Every indorser * * * engages that on due presentment, it [the instrument] shall be accepted or paid, or both, *Page 270 as the case may be, according to its tenor; and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder. * * *"
The proffered evidence tended to establish an entirely different obligation upon the indorsers — an obligation not to do what the law imposed upon them, but to be responsible only upon the happening of a totally different event, the sale of the property for less than $4,000.
Prior to the passage of the Negotiable Instruments Law, it was held in many cases, some of which are cited in the report of the special referee, that the obligation of an indorser in blank was one implied by the law, and that a different one could be established by parol evidence. But since the passage of that law the obligation is express and not implied, and becomes a part of the instrument, as much so as if it had been written above the signature of the indorser. And I think without exception the Courts have so construed the Negotiable Instruments Law. See 1 Daniel Neg. Inst. (5th Ed.), § 717. Extended note to the case ofHawkins v. Shields (Miss.), 4 A.L.R., 760, particularly at page 802. Bank v. Commercial Co., 163 Wis. 470;157 N.W., 510. Interstate Co. v. Bank, 67 Colo., 6;185 P., 260; 10 A.L.R., 705. Cole v. George, 86 W. Va., 346;103 S.E., 201. Smith v. Brabham, 48 S.C. 337;26 S.E., 651.
The evidence upon this issue in behalf of the defendants was received without objection. The evidence in behalf of the plaintiff tended to show that at the first the plaintiff declined to advance as much as $12,000; that in its judgment an advance of $8,000 was as much as the security offered would carry; that when the three notes of $4,000 each, with the mortgage, were forwarded to the plaintiff in Charlotte, and a draft or $12,000 was drawn upon it, the plaintiff declined to honor the draft, unless the three notes should be indorsed by the directors of the corporation, and returned *Page 271 the notes and mortgage to them; that in the conference which ensued it was agreed that the advance would be made if the directors would indorse the $4,000 note which first matured, August 21, 1920, with the distinct understanding and agreement that the indorsement of this note should be additional security, cumulative to the security afforded by the mortgage upon the property.
The difficult question suggests itself, whether this evidence, on the part of the plaintiff, was admissible under the parol evidence rule. As with the evidence offered by the defendants, tending to show a conditional indorsement, no objection was interposed by the opposing party to its admission. If no parol evidence had been offered by either party, or if such evidence had been excluded on both sides, and nothing appeared but the mortgage securing three notes, one of which was indorsed by accommodation indorsers, I do not think that there could arise a doubt but that, upon a sale under foreclosure proceedings, the net proceeds of the sale would have been application pro rata to all of the notes.
"When several debts are secured by a mortgage, for some of which debts there are sureties who are not parties to the mortgage, the mortgagee becomes the trustee for the sureties to the amount of the funds thus provided for their indemnity; and upon a sale of the mortgaged property, the mortgagee must see that their just proportion of the proceeds of the sale is applied to the discharge of the debt on which the sureties are bound." Fielder v. Varner,45 Ala., 429.
"Where a mortgagor, liable to the mortgagee on one note as surety, and on another as principal, with others as his sureties, executes a mortgage for the amount of both notes, to secure all of his indebtedness to the mortgagee, the proceeds of the sale on foreclosure should be applied to the discharge of both notes pro rata." Bank v. Moore, 112 N. Y., 543; 20 N.E., 357; 3 L.R.A., 302; 8 Am. St. Rep., 775. *Page 272
"One who forecloses a mortgage held by him to secure several debts, on some of which a surety is bound, while on others he is not, is, there being no special equities in the case, is not obliged to apply the proceeds to the payment of the secured rather than of the unsecured debts." Wilson v.Allen, 11 Or., 154; 2 P., 91.
"Where a deed is executed, conveying an estate for the security of notes indorsed by different individuals, a Court of chancery, at the instance of any of the indorsers, will compel a pro rata distribution of the proceeds of the trust sale."McDermott v. Bank, 9 Humph. (28 Tenn.), 123.
In 2 Jones, Mtg. (6th Ed.), § 1706, it is said:
"Where the mortgage secures several debts, for some of which there are sureties who are not parties to the mortgage, the mortgagee becomes a trustee for the sureties to the amount of the funds thus provided for their indemnity, and he must see that the proceeds of a sale of the property are applied in just proportions to the discharge of the debts on which the sureties are bound. Neither the mortgagor nor the mortgagee will be allowed to defeat the rights of the sureties, who have a right to be indemnified out of the property."
So that, as an incident of the obligation of the indorsers coupled with the mortgage, a right which inured to them as an incident of the relation, in the absence of a valid agreement affecting it, the indorsers were entitled to a pro rata distribution of the proceeds of the foreclosure sale. The necessary effect of the parol evidence offered by the plaintiff, if it establishes the agreement contended for, would be to establish a waiver or an abandonment of that right; and the question is, Can that agreement be established by parol evidence?
It is my opinion that it cannot, as being in violation of the same rule which would have excluded the parol testimony of the defendants. *Page 273
"The legal effect of a written instrument, even though not apparent from the terms of the instrument itself, but left tobe implied by law, can no more be contradicted, explained, or controlled by parol or extrinsic evidence than if such effect had been expressed." 22 C.J., 1075.
In Page, Const., § 1189, it is said:
"The rule that prior or contemporaneous negotiations cannot be used to contradict, add to, or otherwise vary a written contract applies not merely to the letter of the written contract,but also to its legal effect."
In Colt v. Hallman, 118 S.C. 404; 110 S.E., 462, the Court said:
"The contract is silent as to the time within which the shipment was to be made, which gave the seller the right to ship within a reasonable time, and parol testimony inconsistent with this right to prove a contract for immediate shipment was improperly received."
See, also, Oxweld v. Davis, 115 S.C. 426; 106 S.E., 157.
"And parol testimony is just as inadmissible to contradict an implied term of a written contract as an express term thereof." In re Clairfield Lumber Co. (D.C.), 194 F., 181.
"Verbal agreements, however, between the parties to a written contract, made before or at the time of the execution of the contract, are in general inadmissible to contradict or vary its terms or to affect its construction, as all such verbal agreements are considered as merged in the written contract." The Delaware, 14 Wall, 579; 20 L.E., 779.
In La Farge v. Rickert, 5 Wend. (N.Y.), 187; 21 Am. Dec., 209, the Court said:
"A written contract cannot be varied by parol; and where the legal construction and effect of an instrument are well settled, it is varying the instrument to show that the parties intended something else, as much as it would be to prove that the terms used were not in accordance with the previous agreement." *Page 274
In Rector v. Bernaschina, 64 Ark. 650; 44 S.W. 222, the Court said:
"The rule which prohibits any party from varying, qualifying, contradicting, adding to, or subtracting from, a written contract, by parol evidence of a different understanding or intention, entertained at the time the writing was executed, `precludes the varying of its legal import by the like evidence.'"
In Peterson v. Chaix, 5 Cal.App. 525; 90 P., 948, it is held (quoting syllabus):
"Whatever the law implies from a contract in writing is as much a part of the contract as that which is therein expressed; and to the extent that the contract, with that which the law implies, is clear and complete, it cannot be varied as added to by extrinsic evidence."
At least 100 cases cited by C.J., 1075, are to the same effect.
Mr. Wigmore suggests that, under certain circumstances, extrinsic evidence of an agreement affecting certain aspects of a strictly negotiable instrument, as between the parties thereto, may be resorted to. Sections 2443, 2444, 2445. However that may be, while the note in question is a negotiable instrument, the incidental right of the indorsers to a distribution pro rata of the proceeds of the sale emanates from the fact that the notes are secured by a mortgage — both must be taken together as the source of the right.
My opinion, therefore, is that the testimony of both parties, that of the defendants to alter the terms of the indorsement and that of the plaintiff to alter the legal effect of it, was inadmissible and should have been excluded. The legal effect of allowing it to be admitted, presents an interesting situation.
The fundamental error, as I view it, in the leading opinion, appears in the following statement:
"At the trial of the case both parties submitted oral testimony as to the alleged parol contemporaneous agreements *Page 275 regarding the indorsement of the first note of the series by certain defendants. We think that such testimony was not properly admissible, as it tended to vary the terms of a written contract; but as it was not objected to at the trial,and is not the subject of exception in this Court, it must beconsidered in reaching a conclusion in the case." (Italics added.)
The general rule, of course, is familiar, that inadmissible evidence received without objection becomes a part of the trial of the issues, and may be considered by the Court or jury. The rule, however, relates only to secondary evidence, and goes only to the form in which the evidence may be introduced.
What is commonly termed the "Parol Evidence Rule" isreally not a rule of evidence at all; it is a rule of substantivelaw, that a written instrument cannot be varied by a prior or contemporaneous verbal agreement; and, although actually received as a part of the evidence in the case, the trial Court is powerless to give it effect in contravention of the rule of substantive law. Speaking of it, Mr. Wigmore says:
"In the first place, it is not a rule of evidence because it has nothing to do with the probative value of one fact as persuading us of the probable evidence of another fact. It is a rule of substantive law, because it deals with the question where and in what sources and materials are to be found the terms of a legal act." 4 Wigmore, Evidence (1st Ed.), § 2425.
In Dollar v. Corporation, 13 Cal.App. 331; 109 P., 499, it is held (quoting syllabus):
"The proposition that in the absence of objection secondary evidence is sufficient to support findings based thereon does not apply to the use of parol evidence to vary a written instrument, since whether a contract in writing may be varied by parol is a question of substantive law, while the question of admission or rejection of secondary evidence *Page 276 is governed by the rules of evidence," citing 1 Greenleaf, Evidence (16th Ed.), § 305a.
In the case last cited the question arose upon a petition for a rehearing. The petitioner assigned error in the opinion which had been filed, containing this statement:
"No objection was made to the introduction of this testimony [certain parol evidence tending to vary the terms of a written instrument], but the incompetency of parol evidenceto vary a writing may be considered as a matter of law."
In disposing of the assigned error, the Court said:
"In support of the contention that this is not a correct declaration of the law, a number of cases are cited to sustain the proposition that, in the absence of objection, secondary evidence is sufficient to support the findings of a Court based thereon. The rule declared by this Court is entirely distinct from that applied in those cases. Whether or not a contract in writing may be varied by parol evidence is a question of substantitive law, while the admission or rejection of secondary evidence is governed by the rules of evidence. 1 Greenleaf on Evidence (16th Ed.), § 305a. Where a contract is reduced to writing, whether required by law to be written or not, the writing supersedes all other negotiations and stipulations concerning the matter made at the time or prior thereto. Civ. Code, § 1625. If the terms as agreed upon have not all been reduced to writing, these can be supplied only by an appropriate proceeding, or under proper allegations. Section 1856, Code Civ. Proc. * * * By way of illustration of the distinction between the rule declared by this Court and that cited by appellant, it may be said that parol or secondary evidence, unobjected to, might supply the terms or purport of a contract which had been reduced to writing, and, in this form, furnish sufficient proof to sustain a finding; but parol evidence would neither be admissible tovary this contract, nor, if admitted without objection, besufficient to support a finding which was in conflict with orwhich in any manner varied the original written contract *Page 277 which the parties entered into. The purpose of the rule relating to the varying of a writing by parol evidence is to prohibit this from being done, while the rule relating to the admission of secondary evidence goes only to the form in which the evidence may be introduced. These rules are in no way inconsistent, and the rule as to secondary evidence is not applicable here."
In Pitcairn v. Hiss Co. (C.C.A.), 125 F., 110, the syllabus is as follows:
"The fact that parol evidence to modify a written contract was introduced without objection in an action on such contract does not affect the right and duty of the Court in instructing the jury to pass upon the competency and legal effect of such evidence, especially in a Federal Court, where it is the settled rule that a written contract cannot be reformed in an action at law."
In the opinion the Court declares:
"According to the modern and better view, the rule which prohibits the modification of a written contract by parol is a rule, not of evidence, but of substantive law. 21 A. E. Enc. Law (2d Ed.), 1079. Thayer's Evidence, p. 390 et seq.; 1 Greenleaf, Evidence (16th Ed.), § 350a. Parol proof is excluded, not because it is lacking in evidentiary value, but because the law for some substantive reason declares that what is sought to be proved by it (being outside the writing by which the parties have undertaken to be bound), shall not be shown. Where, by statute, a writing is required either to create an obligation or to effect a result, as in the case of deeds and wills, or of contracts within the statute of frauds, it is readily understood that it is the writing alone that is to speak; but this is equally true of contracts which by the convention of the parties have assumed a similar form. The writing is the contractual act, of which that which is extrinsic, whether resting in parol or in other writings, forms no part. If through fraud, accident, or *Page 278 mistake, it fails to express the contract as it was intended to be made, equity will reform it upon proper proof. But still it is the writing as corrected that is the measure of the parties' undertaking, and they cannot be otherwise held."
Further the Court declared:
"It is contended by the defendant that, as the evidence referred to was before the jury without objection, it could not be withdrawn from their consideration, and should have been submitted to them in the way requested. But to this we cannot agree. Notwithstanding its admission, it was still for the Court to declare what, as a matter of law, was the contract between the parties — whether it was to be confined to that which was expressed in the writings, or could be extended to the verbal assurances alleged to have been given outside of them. This did not depend on how theevidence came in — whether with or without objection; it still devolved on the Court, instructing the jury, to pass upon its competency and legal effect, and that is all that was done in the ruling complained of. The Court simply held that the writings were to be taken as constituting the agreement, and that extrinsic evidence could not be resorted to, to modify it. * * * Unless, therefore, the rule which prohibits the introduction of extrinsic evidence is to be disregarded, the writings must be taken as expressing the contract between the parties, and there was no waiver by the plaintiffs of their right to adhere to them, and to have the case determined thereby, merely because parol evidence as to what passed outside of them was permitted to come in. The competency of this evidence, as a matter of law, to affect the writings, was not necessarily conceded by the failure to object at the time."
In Morrison v. Riley (Tex.Civ.App.), 198 S.W. 1031, the syllabus is as follows:
"The rule that the terms of a written instrument cannot be varied by parol is a substantive law, and not merely a rule of evidence, and the legal effect cannot be avoided even *Page 279 though proof of parol agreements be admitted without objection."
In the opinion the Court declares:
"But it is clear to us that the parol agreement relied on in this case could not be given effect, since it is in plain contravention of a stipulation contained in plaintiff's mortgage that the property thereby pledged should be free from all other mortgages and incumbrances whatsoever. We have examined several of the authorities cited by the author to support the text quoted above, and in none of them which we have examined is there any indication that the rule announced would be applicable whenever to do so would be to override and set at naught the other well-established rule that, as between the parties thereto, a legally binding written instrument, which is unambiguous in its terms, cannot be varied, added to, or contradicted by proof of prior or contemporaneous agreements. The latter rule is a rule of substantive law, and not merely a rule of evidence, and the legal effect of the written instrument cannot be avoided, even though proof of such parol agreement be admitted without objection, since such parol proof is incompetent to accomplish that result. 4 Wigmore on Evidence, §§ 2400, 2425, 2446; 3 Jones on Evidence, §§ 434, 435; 10 R.C.L., pp. 1017, 1018; 1 Greenleaf on Evidence, § 275; 17 Cyc., 570;Henry v. Phillips, 105 Tex., 459; 151 S.W. 537. Rubrechtv. Powers, 1 Tex. Civ. App. 282; 21 S.W. 318."
In the case of Shropshire v. Bank (Tex.Civ.App.),196 S.W., 977, the Court said:
"The rule that parol testimony is not admissible to vary, change, or add to a written instrument is one of substantive law, and not a mere rule of evidence, and testimony introduced in violation of that rule, even in the absence of objection thereto, can be given no legal effect."
"The rule which prevents the varying of a written instrument by parol evidence denies such an effect to parol evidence *Page 280 even when such evidence is properly in the record."Muller v. Bernstein, 198 Ill. App. 104.
In American Co. v. Railroad Co., 41 N.D., 381;170 N.W., 568, the syllabus is:
"While the failure to object may be a waiver of the incompetency of evidence, it is not a waiver of the right to question its legal effect or its legal sufficiency."
In the opinion the Court declares:
"Plaintiff contends that, inasmuch as there was no objection to Wright's testimony when it was offered, it became competent evidence, and must be so considered. The rule sought to be invoked is well established, but it does not go to the extent contended for by plaintiff. While the failure to object may constitute waiver of the incompetency of the evidence, `it is not a waiver of the right to question its legal effect or its legal sufficiency.'"
"The `parol evidence rule' is a rule of substantive law, because it deals with the question of where and in what sources and materials are to be found the terms of a legal act." Milton v. Burton, 79 Fla., 266; 84 So., 147.
"While the rule known as the parol evidence rule is usually referred to as a rule of evidence, it is more properly a rule of substantive law, since it is a rule of substantive law and not any rule relating to the admissibility of evidence that gives the rule effect." Andersonian Co. v. Wade, 108Wash., 373; 184 P., 327.
"Parol evidence, contradicting chattel mortgage, cannot vary it, even though admitted without objection." SouthTexas Implement Machine Co. v. Anahuac Canal Co. (Tex.Com.App.), 280 S.W. 521.
"Court can disregard parol evidence, admitted without objection, to vary terms of unconditional promissory note, on subsequent motion by holder to direct verdict." Bushnellv. Elkins, 34 Wyo., 495; 245 P., 304. *Page 281
"Incompetent evidence admitted without objection becomes evidence in case and has probative effect subject to exception in case of parol evidence which, though admitted without objection, cannot have effect of varying written instrument." Gethins v. Breeyear, 252 Mass. 326;147 N.E., 876.
"Oral agreement, entered into at the time of or prior to the execution of a note, that it should not become payable until demand, was not admissible to vary express written promise in the note to pay `one day after date, without grace,' * * * and such rule is not one merely of evidence, but of substantive law, and it is immaterial that some evidence relating to the oral understanding was not specifically objected to." Rottman v. Hevener, 54 Cal.App. 474;202 P., 329.
"Parol evidence, though admitted without objection to prove reservation of underground passageway from railroad right of way deed, is without probative force, and insufficient to support verdict or finding." Railroad Co. v. Wiseman (Tex.Civ.App.), 247 S.W. 695.
"Although oral evidence may be admitted without objection, it should not be permitted to work an alteration of a written contract between the parties." 10 R.C.L., 1017.
In Butterick Pub. Co. v. Fisher, 203 Mass. 122;89 N.E., 189; 133 Am. St. Rep., 283, it is held:
"Parol evidence to place upon one of the parties to a contract a greater burden than was imposed by such contract, though admitted without objection, cannot have the effect of changing a contract in writing."
"The rule that incompetent evidence, admitted without objection, is to have its probative effect, had no application to the admission of oral evidence that the parties to a written lease understood the premises were to be used for the sale of liquor, which became unlawful before the expiration of the lease, where the lease was not ambiguous, and contained *Page 282 no reference to the character of the business to be conducted."Robbins v. McCabe, 239 Mass. 275;131 N.E., 799.
"In action on written contract of guaranty of the payment of a dividend on corporate stock, the parties were bound by the contract as written, though parol evidence was admitted without objection." Creighton v. Elwell, 243 Mass. 580;137 N.E., 737 (syllabus).
In the opinion, it is said:
"The agreement was in writing and its construction was for the Court. The parties are bound by the contract as written; this rule is not affected by the fact that parol evidence was admitted without objection."
In De Pasquale v. Bradlee (Mass.), 156 N.E., 37, the syllabus reads:
"The terms of a written instrument cannot be varied by parol evidence, though put in by both parties; Court in such case being still required to consider its legal effect."
In the opinion the Court declares:
"The evidence should not have been received, and the case stands before this Court with such evidence disregarded and as if stricken from the record."
The case should have been decided, therefore, in total disregard of the oral evidence of both parties tending to vary the terms of the written contract between them, evidenced by the indorsement of the first $4,000 note, notwithstanding the fact that such evidence, on both sides, was admitted without objection.
The exclusion of consideration of the defendant's evidence that their indorsement was qualified and limited as above indicated, fixes liability upon them under the simple law of indorsements. The exclusion of consideration of the plaintiff's evidence that the note was executed as additional security to the real estate mortgage remits the plaintiff to its strict legal rights under the written instrument, subject *Page 283 to the right of the indorsers to a pro rata application of the proceeds of the sale to the $4,000 note.
If the points herein discussed had been made in the Court below, or by exceptions to the decree of Judge Memminger, I think that the judgment should have been modified by requiring the application of the proceeds of the sale to the three notes pro rata. But they were not made, and I have sought in vain to find an exception which would justify this Court, as an appellate tribunal, in thus solving the issues between the parties. They have pitched their fight upon a different battle ground, and the affirmance of the circuit decree seems to me inevitable.
It may be suggested that the points upon which my conclusions have been reached were not presented upon the trial of this case nor upon the appeal. This is true; but it must be remembered that the defendants are appealing from the decree of the Circuit Judge upon the ground of error in deciding that, upon the evidence, no such agreement as they allege had been established. They propose now that the decree be reversed upon a consideration of that evidence which in my opinion was inadmissible. As I have endeavored to show, the absolute impotency of the Court to violate the rule that parol evidence cannot be received orconsidered, where it tends to vary the terms of a written instrument, cannot be converted into positive power, by the admission of such evidence without objection.
But assume that all I have written must be consigned to "the port of missing traders," and that the case is to be decided upon the admittedly inadmissible evidence on both sides, I think that his Honor, Judge Memminger, correctly decided the questions of fact before him. His decree, in my opinion, is unanswerable. The property was valued at $8,000; upon that security the plaintiff declined to loan $12,000, naturally, unless the directors would personally guarantee by indorsement the note of the corporation; the directors declined to do so, but agreed to indorse the note first falling *Page 284 due which was done. They now claim that their indorsement was qualified by the condition that the property valued at $8,000 would bring $4,000 at foreclosure sale. What security that added to the mortgage for $12,000 it is impossible to conceive. Of course, the property would bring $4,000; the plaintiff would make it bring that much. So the indorsement, accepting the version of the defendants, amounted absolutely to nothing.
I have no intention to reflect in the slightest degree upon the worthy gentlemen who have endeavored to sustain this theory, and who honestly have entertained and testified to this version of the transaction; but the inherent improbability of it leads me to the conclusion that they, like hundreds of other honest and worthy men, have been mistaken in their recollection. I have not a doubt but that the indorsement was intended as additional security to that afforded by the mortgage.