Court Opinion

ID: 8801069
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:32:47.593413+00
Date Added: 2024-06-11T17:03:54.313096
License: Public Domain

MORROW, Circuit Judge
(after stating the facts as above). [1] It is contended by the appellant that the court below, in dismissing the action, necessarily based its judgment upon the agreement of January 27, 1912, as modified by the parol agreement set up in the defendant’s answer, as an affirmative defense. Assuming that this is so, we do not think the objection is a ground for reversing the judgment. In Jones on Evidence, ,§ 446, the author says:
*49“It has long been the settled rule that in courts exercising equitable jurisdiction it is admissible to prove by parol that instruments in writing apparently transferring the absolute title are in fact only given as security."
In Peugh v. Davis, 96 U. S. 332, 336 (24 L. Ed. 775), the Supreme Court had before it a deed absolute in form, but claimed to have been executed as security for a loan of money, and the question was whether evidence, written or oral, was admissible to show the real character of the transaction. The court said:
“That court (a court of equity) looks beyond the terms of the instrument to the real transaction; and when that is shown to be one of security, and not of sale, it will give effect to the actual contract of the parties. As the equity, upon which' the court acts in such cases, arises from the real character of the transaction, any evidence, written or oral, tending to show this, is admissible. The rule which excludes parol testimony to contradict or vary a written instrument has reference to the language used by the parties. That cannot be qualified or varied from its natural import, but must speak for itself. The rule does not forbid an inquiry into the object of the parties in executing and receiving the instrument.” . v
In Brick v. Brick, 98 U. S. 514, 516, 25 L. Ed. 256, the rule declared in Peugh v. Davis was followed with respect to a pledge of a certificate of stock as security for a loan of money; and in Cabrera v. American Colonial Bank, 214 U. S. 224, 230, 29 Sup. Ct. 623, 626 (53 L. Ed. 974), in which it was claimed that a bill of sale was an absolute conveyance and accomplished tire payment of certain debts to a bank, the court said:
“The face of an instrument is not always conclusive of its purpose. In equity, extrinsic evidence is admitted to show that a conveyance absolute on its face was intended as security. The rule regards the circumstance of the parties and executes their real intention, and prevents either of the parties to the instrument committing a fraud on the other by claiming it as an absolute conveyance, notwithstanding it was given and accepted as security. In other words, the real transaction is permitted to be proved.”
[2] But aside from the parol agreement set up in the answer, we are of opinion that the written agreement of January 27, 1912, bears on its face the conclusive evidence that the assets therein transferred to the Valley Bank were transferred as security for a debt, and not an absolute sale. The conditions of the agreement were secured by guarantors. What were the conditions for which this security was given? To secure the payment to the Valley Bank of any deficiency that might remain unpaid after applying all of the cash received and collected and all of the securities collected and reduced to cash upon the amount of the indebtedness of the Union Bank & Trust Company which the Valley Bank should be able or be obligated to pay under the terms of the contract; and the guarantors further agreed that they would repay to the Valley Bank all costs and expenses which the Valley Bank might incur in reducing the assets to cash or in collecting the moneys due on such securities asid evidences of indebtedness as were collectible.
Then follows the promissory note dated May 17, 1913, executed by the Union Bank & Trust Company for the sum of $164,432.46 and delivered to the Valley Bank as evidence of the indebtedness then existing and due the Valley Bank from the Union Bank & Trust Company. If the agreement of January 27, 1912, was a sale, and not a pledge to-*50the Valley Bank of the securities therein mentioned, why was this note given more than a year later as evidence of the indebtedness of the Union Bank & Trust Company at that time? Manifestly it had no place in an agreement of sale, but it did have a place in dealing with an indebtedness arising from payments to be made 'to the creditors of the Union Bank & Trust Company.
Then follows the agreement of December 30, 1913, when the indebtedness of the Union Bank & Trust Company to the Valley Bank had been reduced to $103,000, but which at that time exceeded the probable value of the securities then held by the Valley Bank in the estimated sum of $75,000. The agreement further provides for the transfer of other securities to meet this unsecured indebtedness and a continuance of the personal security of the guarantors for the indebtedness then existing.
Looking now at the provision of the agreement of January 27, 1912, transferring to the Valley Bank the assets therein mentioned absolutely, we must now construe that provision, not as a sale, but as a transfer intended to enable the Valley Bank to deal with the assets of the Union Bank & Trust Company with power to convey title.
[3] We find that the allegation of the complaint that in March, 1913, complainant purchased 472 shares of the preferred stock of the Union Bank & Trust Company upon representation made by the president of the latter corporation that the outstanding debts and obligations due and owing from the Union Bank & Trust Company to The Valley Bank had been liquidated under the terms of the contract of January 27, 1912, and that the Union Bank & Trust Company was a going corporation and was in a solvent condition, is not supported by the testimony; and we are of opinion that the evidence which does support the allegations of the complaint shows that the assets transferred to the Valley Bank under the written agreements referred to were transferred as security for an indebtedness, and not as a sale; that such transfer was legal; and, under any theory of this case, the complainant cannot recover assets remaining in the Valley Bank until it has first répaid to that bank the amount due as a deficiency on account of the debts of the Union Bank & Trust Company paid by the Valley Bank.
It follows that the decree of the lower court must be affirmed, and it is so ordered.