CHARLESTON.

#### George M. Boardman *v.*O. T. Frick.

Submitted December 12, 1923.

Decided December 18, 1923.

1. Buns AND *Notes*— Renewal *Note Payable in Dividends on Stock Must be Sxvpported by Consideration.*

Where a promissory note is payable in dividends to he declared by a corporation on its stock, and a renewal note is executed which changes the original so as to make the personal credit of the maker the essential and primary basis, and providing that dividends on the stock are to be used for payment as received; some valid consideration must pass in order to sustain the change in the original contract. A valid consideration is necessary to support the change, such as a forbearance to sue, extension of time, or adjustment of some controversy. (p: 265).

2. *Same*— Renewal *Note to Ascertain Proper Credits Made by a Payment of Dividends Held Without Consideration.*

Where such renewal is requested by the maker for no other purpose than to ascertain the proper credits which should be made by reason of payment of dividends about which there is no controversy, and the renewal is for that purpose only, no consideration has passed supporting such radical change from the terms of the original contract as set out in the first point. (p. 268).

*2643. Evidence! — Intent *of Note As to Fund Primarily Liable for Payment Ascertained from Gircwmstances.*

A promissory note which, on its face is ambiguous as to whether the payee shall look to a particular fund for payment, o-r whether the personal credit of the maker is primarily liable for payment, may bg interpreted and its true intent and purpose ascertained by resort to the circumstances surrounding the parties, their situation and relation, and the practical construction given by them both simultaneously and subsequently. (p. 271).

4. *Same*— Matter *May Show Conditions the Violation of Which Will Defeat Enforcement.*

Where litigation is between the original parties to a promissory! note, or those standing in no better situation than the original parties and charged with knowledge of the purpose of the note and for what reason and under what conditions given, the maker may show a contemporaneous parol agreement between himself and the beneficiary of the note, which induced him to sign it, and the violation of which by the payee will defeat its enforcement, (p. 272).

Error to Circuit Court, Cabell County.

Suit by George M. Boardman against O. T. Frick. Judgment for plaintiff, and defendant brings error.

*Reversed, and judgment entered.*

*Paul W. Scott,*for plaintiff in error.

*Fitzpatrick, Brown & Davis,*and *Robert E. McCabe,*for defendant in error.

.Lively, Judge:

The judgment complained of by this writ of error was rendered October 14, 1922, by the court, a jury having been waived, and is in favor of George M. Boardman, plaintiff below, against 0. T. Frick, defendant below (plaintiff in error) for $5,978.87, the basis of which is a note dated March 1, 1913, for $3,790.15, payable one day after date, in favor ■of Boardman, and made by Frick.

The suit is by notice of motion for judgment, to which defendant appeared and pled the general issue and filed a special plea' alleging in substance, that the note sued on was a renewal note and was executed without consideration so far *265as it attempted, to change the legal effect- of the obligation contained in the original note, that this change in the obligation was void and its execution obtained by fraud, false representation and circumvention. The evidence was taken by depositions and submitted to the court in lien of a jury, with the result above indicated. The note sued on is as follows:

> “New York, March 1, 1913.

> “One day after date, I promise to pay to the order of George M. Boardman, at his office, Number 10 Bridge Street, New York City,

> Thirty-seven hundred ninety and 15-100 Dollars,

> "With interest from date at six per cent per annum. Value received.

> This note is secured by 75 shares, capital stock of American Naval Stores Company, Certificates Number 121 and Num|ber 315, and dividends on said stock are to be used for payment of this, note as received $3790.15.

> (Signed) O- T. Prick.”

This note is a renewal of a somewhat similar note below set out. It is designated in the record as a “renewal” and as a “new note.” It is reasonably clear that it was intended as a renewal of the old obligation. Both parties treated it as such. The original note is as follows:

> “6216.50 Savannah, Georgia, April 1, 1907.

> One day after date I promise to pay to the order of George M. Boardman,

> Sixty-two Hundred 'Sixteen and 50-100.Dollars. With interest from date at six per cent per annum. Payable in dividends to be declared by American Naval Stores Company of West Virginia, secured by fifty shares of stock in American Naval Stores Company of West Virginia, certificate Number 121. Value received.

> (Signed) O. T. Prick.”. .

This original note came into existence in this way: Prior to its execution two competitive corporations were in existence, one known as the S. P. Shotter Company and the other as the Patterson-Downing Company. The stock of the two companies was placed under control of a third corporation known as the Atlantic Investment Company. Bach COrpOra*266tion continued under its separate existence until the merger was attacked under the Sherman Anti-Trust Law. Then it appears that these two corporations went out of existence and the American Naval Stores Company, another corporation, took over the assets and business of the two companies. Boardman was president, director and treasurer of the Patterson-Downing Company and one of its several stockholders; he was a large stockholder in the Atlantic Investment Company, and when the American Naval Stores Company was formed he became treasurer of that corporation, a large stockholder therein, and a member of its board of directors. Defendant Frick was an employee, first of the S. P. Shotter Company and afterwards of the Atlantic Investment Company and of the American Naval Stores Company. The S. P. Shot-ter Company went out of existence in 1906, and when the American Company was formed about that time he entered its service and continued until some time in the year 1910. Frick was not an officer of any of these companies. It appears that when the Atlantic Investment Company was formed Frick was given 50 shares of the stock of that company, for which he gave a note, which provided that it was to be paid out of dividend's of the company. The policy was to encourage desirable employees to become interested in the corporation, and do more energetic work for that reason. This stock was paid by the dividends. S. P. Shotter, of the S. P. Shotter Company, was an officer of the Atlantic Investment Company and of the American Company, and when the latter was formed the company followed the policy of the Shotter company and the Atlantic company in encouraging its desirable employees do take stock so that they would become interested in the employing company, allowing them to pay for the stock out of dividends accruing. The original note above set out came into existence in that way, and was for 50 shares, which the note says on its face was put up as collateral security; the note being payable in dividends to be declared by the American Naval Stores Company of West Virginia. It will be noted that this obligation is made payable to Board-man, the plaintiff. The explanation of why this was done is not very clear. Boardman says he purchased the obligation *267from Shotter and paid' cash therefor. He had no negotiations whatever with Frick, the maker of the note. Jnst how this was an obligation which Shotter conld sell is not clear. It is not assigned by Shotter. His name does not appear in connection with it. Shotter says he had no such transaction with Boardman, and neither did the Shotter company. The Shotter company conld not have done so, because it was not in existence, having been dissolved in 1906. The note was given for the stock, and naturally would have been made to the American company. Presumably, the money which Board-man says he paid for the obligation went into the treasury of the American company. Frick says he was directed by the Savannah office, from which he received the note for signature, to make the obligation in that way. There is no denial that Boardman paid the money which he said he did as an investment. He stands in no better position than the American company. He does not look to Shotter as an endorser. On its face the note is payable to Boardman, and in the manner therein stated. He has no standing as an *innocent purchaser*for value. Evidently he did not pay it to Shotter who did not own it, and who says he had no transaction of that character with Boardman. Dividends were regularly declared on the stock each January up to and including the year 1913, and were credited on the original note as paid, discharging that much of the note together with accrued interest. At the date of the new note these payments had reduced the amount to the exact sum for which the renewal note was given, $3,-790.15. Some time prior to January 9, 1913, a stock dividend had been declared by the American company of 50 per cent, and 25 additional shares of this stock dividend had been issued to Frick. On that date, January 9, 1913, Boardman requested Frick by letter to send him the 25 shares stock dividend to hold as collateral. He offered to pay Frick $2,500 for the 25 shares, and apply the same on the note, which was declined by Frick. Boardman never claimed this stock dividend to apply on the note, but requested that it be sent to him to hold as collateral, and offered to buy it as above set out. About this time Frick requested that the note be renewed in order to show the amount remaining unpaid thereon, which *268by exact calculation amounted to the sum stated in the renewal note. - There had been a dividend of $6.00 on each share, which had not been credited, which afterwards came in and was credited on the old note, and the renewal note was not sent until after that sum had been credited as of March 8, 1913. It will be observed that the renewal note was dated March 1st. On March 13th the American company failed, and no further dividends were paid, and it seems that the stock is practically worthless. Five years later, this action was begun. Boardman says he was waiting to see if anything would be paid on the stock which he held as collateral before suing. He admits that in 1913, after the failure, he had information that Prick claimed he was not to pay the obligation except out of dividends declared on the stock. It will be observed that the renewal note is quite different in terms from the original note. By its terms it is a direct promise to pay to Boardman the amount therein stated, and instead of being payable out of dividends as stated in the original note, the stock is put up as collateral security with the dividends therefrom to be used in payment. Boardman says he had a purpose in changing the terms of the new note. He says, however, that there was no consideration for the change as made. The contention of Prick is that he signed the renewal note, not having the original before him, and under the supposition that it was the same as the original and that no intimation of the change was given him by Boardman; and on this is based the claim set out in his plea that the terms of the renewal note were obtained by fraud, false representation and circumvention. He resists the payment on the ground that there was no consideration for the change in the terms of the renewal note and that there was no meeting of the minds of the parties in making this change, and that it was done by circumvention on the part of Boardman and signed inadvertently by defendant. Boardman contends that there was sufficient consideration for the change, in the fact that it was a renewal of the note for an antecedent debt, which, of itself, constitutes a consideration for the renewal and all of the provisions therein even though they may differ from the original note. The further contention of counsel *269for Boardman is that the consideration for tbe new note was in the waiver of Boardman to require the stock dividends to be applied in reduction of the note instead of holding it as collateral. However, Boardman in his evidence does not claim this as a consideration. He never made any demand that the dividend stock should be so applied, and accepted it as collateral. He did not claim it in that way, but offered to purchase it, acknowledging Frick’s right thereto. He states also that there was no consideration for the change made in the renewal note. Both parties, at the time the renewal was given, considered the stock valuable, and Boardman accepted without question the stock dividend as additional security, and before the renewal was requested. But it is contended that the antecedent note is the consideration for the renewal in its changed form. There can be no question that the existence of the old obligation was consideration to support a renewal of the same obligation. An antecedent debt constitutes consideration for a renewal. But the distinction here is that the renewal makes, or attempts to make, a new contract radically different from the old one. If the renewal was made for the purpose of preventing a suit on the old, the same having become due, then there would be a consideration for a new and changed obligation. *Williamson*v. *Cline,*40 W. Va. 194. An extension in time of payment, forebearance to sue, or any like benefit to the maker, however small, would support the additional terms of the new promise and afford a consideration for the renewal note in all its terms. *Sheffield*v. *Harvesting Machine Co.,*59 S. E. 1113. We have nothing of that kind here. The renewal was for no other purpose than ascertainment by the parties of the amount remaining unpaid on the old obligation. The case of *Renick*v. *Correll,*4. W. Va. 627, and cases of like nature following it, are cited by counsel for Boardman to sustain the proposition that although the original note was payable out of dividends, the fact that such original note was given would be sufficient to support the renewal note in its changed form. *Renick*v. *Correll*was a suit .on a bond for $4,000 given to the administrator of William Renick, against R. W. and B. F. Ren-ick, and the money so borrowed was intended to be used and *270was used to pay a confederate debt owing by the makers of the note to Ludington in a land transaction, plaintiff’s intestate knowing that the money was to be so used. R. W. Renick had purchased land from Ludington for $20,000 confederate money, on which land ¥m. Renick, plaintiff’s intestate, had a lien*, for which Ludington had given his note to ¥m. Reniek. Afterwards R. W. Renick and Ludington rescinded their trade, except that the $20,000 in confederate money was not refunded, and the bond sued on was for the purpose of refunding that confederate money and for no other purpose, and it was claimed that there was no consideration for the bond for that reason. The money borrowed was ‘ ‘ good and lawful” money, and the court held that even though plaintiff’s intestate knew it was to be used to pay an illegal debt, yet the consideration was good. The court said that although defendants might have been indebted to plaintiff’s intestate in any sum to be paid in confederate money, and settled or compromised the claim by giving bond for a less sum, it constituted consideration, under *Jarrett*v. *Nickell,*4 W. Va. 276, where it was held that confederate treasury notes were not so vicious and worthless as to be incapable of constituting a valid consideration of a compromise. If the antecedent debt is a mere moral, and not a legal, obligation, its existence will not be sufficient consideration to support a written promise to pay it. *Gooch*v. *Gooch,*70 W. Va. 38; *Cox*v. *Davis,*85 W. Va. 604. The law raises no promise to pay in such eases. "Was there a moral or legal obligation on Frick to pay the note, if it was not paid out of the dividends ?

Frick was not benefited in any way by the change in the terms of the old note. Both were one day notes, and we can see no consideration for the change in the terms of the obligation or what consideration passed from either party for this change in the original contract. We think the change in the renewal note being without consideration can not avail the plaintiff. It must be considered as if the note had been renewed in the terms of. the original note. Whether there was fraud, circumvention or trickery in procuring it, is immaterial. Frick signed the renewal with his eyes open. No false representations were made. While he asked to renew *271tbe note, it was bis duty to know what he was signing. The ■question then arises whether, under the terras of the original note, this balance could be recovered from Frick. It will be ■observed that the original note contains a direct promise to pay a certain amount of money one day after, date with interest, value received. It is payable out of the dividends on the stock. But is that the exclusive method of paying this note? It does not say that if the note is not paid by dividends it shall become void. Frick says such was the understanding he had with the company when he gave the original obligation, and that it was an inducement for him to work without increased salary. It was giving him a chance to participate in the earnings of the company in lieu of increased salary. Shotter, who was the chairman of the board of directors of the American company at the time the stock was issued and •note given, also says this was the understanding. But can we vary the terms of this contract by the understanding of the parties at the time, if the writing itself is not ambiguous? We do not think it is clear from an inspection of the note that .it was intended that payment should be made exclusively from the dividends declared; nor is it clear that dividends ■on the 50 shares which secured the note alone should be applied to its discharge. Frick may have had other stock from which dividends would be applied on the note. As determining the negotiability of the note (if it was otherwise negotiable) the true test is, does the note carry the general personal credit of Frick, or only the credit of a particular fund, the dividends of the American Naval Stores Company? This ■question must be determined by the circumstances and situation of the parties, unless the note itself puts the meaning beyond question. *Bank*v. *Lightner,*8 L. R. A. (N. S.) 231; *Heflin Gold Mining Co.*v. *Hilton,*124 Ala. 365; *Bank*v. *Sullivan,*Anno. Cas. 1913C, 930, and note on p. 932. “In all cases in which a particular fund, to accrue *in futwro,*is •designated in the draft, and the language is ambiguous, the “turning point is whether it was the intention of the parties -that the payment should be made only out of the designated fund, when or as it should accrue, or whether the direction to the drawee to pay was intended to be absolute, and the *272fund was mentioned only as a source of reimbursement, or an instruction as to book keeping. ’ ’ *Brill*v. *Tuttle,*81 N. Y. 454; 37 Am. R. 515. If tbe language be ambiguous it is elementary that tbe situation of tbe parties and surrounding circumstances may be shown and considered. “Tbe circumstances under wbicb a writing was made may be always shown. Tbe question the court is seeking to answer is tbe meaning of tbe writing at tbe time and place it was made, and all the surrounding circumstances at tbe time necessarily throw light upon tbe meaning of tbe contract.” Williston on Contracts, see. 618. We think tbe evidence wbicb detailed tbe circumstances leading up to tbe acquisition of tbe stock by Frick, tbe policy of tbe American company in retaining its desirable and capable employees without raise in salary, tbe connection of plaintiff as an officer and director with the companies, and bis interest therein, and tbe terms and un-. derstanding on wbicb tbe stock was sold and purchased was admissible to throw light on tbe crucial question, namely, whether tbe dividends to be declared were tbe sole source of' payment of tbe note, or whether it was intended that Frick was to pay for tbe stock if dividends failed. Boardman stands in no better position than tbe American company wbicb issued tbe stock as an inducement to bold its capable employees. He took tbe note and tbe stock as collateral knowing the conditions stated on tbe face of tbe note, and was charged with constructive notice of tbe policy of bis company in wbicb he was a large stockholder, a director add an officer. Another rule of construction is that tbe acts of tbe parties at the time and subsequent to tbe transaction are a cogent index of the-intention and meaning of the contract. The practical construction which tbe parties place upon a contract is entitled to great consideration where there is any doubt as to its meaning. *Bank*v. *McVeigh,*32 Grat. 531; *Gibney*v. *Fitzsimmons,*45 W. Va. 334; *Camden*v. *McCoy,*48 W. Va. 377. The note-was at one day, and no question was raised as to its payment after tbe due date, no demand made on the maker, until five years after dividends bad ceased and it was ascertained that the stock was worthless. Boardman knew in 1913, after the company failed, that Frick would resist payment. Plaintiff *273was looking to the dividends for reimbursement. He knew nothing of the financial responsibility of Frick when he took the note, in fact had no knowledge of him, and evidently was not considering him as a source of payment. His attempt to change the obligation and make a new contract by which defendant would be bound personally beyond question evidenced his interpretation of liability under the old note. Moreover, Shotter and Frick both say the dividends were the only source of payment, and that it was the understanding when the stock was issued. Frick was dealing with the company and made the note payable to Boardman at its instructions. Boardman’s transaction was with the company and not with Frick. There is much authority to the effect that where the controversy is between the original parties to a promissory note a parol contemporaneous agreement between the parties may be shown which induced the making of the note and which agreement has been violated after the note is given. *Faux*v. *Titler,*223 Pa. 568; 72 Atl. 891, and cases there cited.

We hold that the evidence and circumstances impel the conclusion that the original note was to be paid only in dividends from the stock, the agreed source of payment; that the change in the original note by the renewal note making a new and different contract was without consideration to support it; and therefore judgment of *nil capiat*should have been rendered.

The judgment will be reversed, and judgment of *nil caqpiat*entered here.

*Reversed; judgment entered here.*