Cabrera v. American Colonial Bank

by Joseph McKenna

United States Supreme Court

214 U.S. 224

Cabrera  v.  American Colonial Bank

 Argued: April 7, 1909. --- Decided: May 24, 1909

This is a suit to foreclose a mortgage given by the appellant Maria de las Nieves Cabrera y Pruna to the appellee bank, executed by her on certain property in Porto Rico, to secure a promissory note for 8,000 pesos, provincial money, made in favor of the bank by a mercantile firm in San Juan, known as Sucesores de J. M. Suarez y Compania, as principals, and the appellant above named as surety. The Banco Territorial y Agricola was also made a party, but, as it disclaimed any interest in the controversy, no further proceedings were taken against it. Magdalena de la Cruz Cabrera y Pruna was made a party because, as it is alleged in the bill, the property mortgaged was conveyed to her by Maria de las Nieves Cabrera y Pruna, who was her sister, for the purpose of depriving the plaintiff (appellee here) of the benefit of its security, and that the conveyance was made without consideration. She answered, denying the allegations, and averred that the conveyance was made upon certain valuable considerations, which were set out.

The answer of Maria de las Nieves Cabrera y Pruna set up that her signature to the mortgage had been obtained by fraud, and that Suarez & Company had paid the debt secured thereby, that the original note signed by her had been renewed without her knowledge or consent, that the bank had accepted a bill of sale of the stock of merchandise belonging to Suarez & Company in full payment of the indebtedness, and had executed a public document acknowledging the same. She also averred the good faith of the conveyance to her sister.

The principal contention of appellants in this court turns entirely on the truth of the allegation that the bank had accepted the bill of sale of the stock of Suarez & Company in full payment of the indebtedness. Of this bill of sale we may say at the outset that the district court found, and we concur in that finding, that it was not executed with such intention. Appellants, therefore, are limited to the proposition that it had such effect by operation of law. They so contend, insisting that it was a conveyance of property on its face, and that it could not be varied or changed by parol testimony. The district court, having admitted such testimony, it is further contended, committed error. The ruling that parol evidence will not be received to vary a written instrument is elementary, but the inquiry is, Is that ruling so far imperative in Porto Rico that an instrument, though an absolute conveyance on its face, may not be shown as only intended for security?

A statement of some of the facts will exhibit the situation of the parties and their relations to the indebtedness. Previous to the year 1900 Jose Maria Suarez carried on a mercantile business in San Juan, Porto Rico. Shortly before that date he died, and two of his brothers, including his widow, Maria de las Nieves Cabrera y Pruna, one of the appellants, continued the business under a partnership, organized in the early part of 1900, under the firm name and style of Sucesores de J. M. Suarez y Compania. Suarez had bought the store with his wife's private funds, and owed her at the time of his death 8,000 pesos, and she became a silent partner to that extent, but took no part in the management generally. The partnership, being in need of money, borrowed from appellee, on the 21st of February, 1900, the sum of 8,000 pesos, equivalent to $4,800 in United States currency, and gave its promissory note to secure the sum, payable in six months, at 9 per cent interest. The note was in the following words:

$8,000 Pesos

$4,900 Dollars*) Either on demand.

San Juan, Porto Rico, February 21, 1900.

Six months after date, for value received, we promise to pay to the American Colonial Bank of Porto Rico, at the office of the said company, in the city of San Juan, 8,000 pesos M. C. or 4,800 dollars U.S. cy., having deposited with said company as collateral security for payment of this or any other liability or liabilities of ours to said company, now existing, or which hereafter may be contracted, the following property, viz.:

A cession of all the interests of the signers of this in the estate of Nieves Pruna y Vanrosi, and a mortgage on house on Sol street. This note can be renewed with the consent of the cashier of the American Colonial Bank, without prejudice to the security or collateral, with full power and authority to said company to sell, assign, and deliver the whole, or any part thereof, or any substitutes therefor, or any additions thereto, at any brokers' board, or at any public or private sale, at the option of said company, or its president or treasurer, or its or their or either of their assigns, on the nonperformance of this promise, or the nonpayment at maturity of any of the other liabilities aforesaid, or at any time or times thereafter, without demand of payment, advertisement, or notice of sale, which are hereby expressly waived; and, after deducting all costs and expenses for collection, sale, and delivery, to apply the residue of the proceeds of such sale or sales, to pay any or all of said liabilities to said company, or its assigns, as its president or treasurer or assigns shall deem proper, returning the overplus to the undersigned; and upon any sale at public auction or at brokers' board the holder thereof may purchase the whole or any part of such securities, discharged from any right of redemption. And the undersigned agrees to be and remain liable to the holder hereof for any deficiency.

The company is hereby given a lien upon all moneys held by it on deposit or otherwise, to the credit of the undersigned, and is authorized at any time to appropriate all of said moneys to the payment of whatever may be due on this note, or any other obligations of the undersigned now existing or hereafter contracted, whether the same be then due or not due.

In case of depreciation in the market value of the security hereby pledged, or which may hereafter be pledged for this loan, a payment is to be made on account, so that the said market value shall always be at least-per cent more than the amount unpaid of this note. In case of failure to do so this note shall be due and payable forthwith, anything hereinbefore expressed to the contrary notwithstanding, and the company may immediately reimburse itself by sale of the security as hereinbefore provided.

(Sgd.) Maria de las Nieves de Suarez.

(Sgd.) Suc. de J. M. Suarez & Co.

The note was signed by her as a principal, but the bill alleges that the firm signed as principal, and that she signed as surety, and, to further secure the note, that she executed the mortgage in this suit. It is recited in the mortgage that the note was given by the firm 'as direct debtors,' and that she executed the mortgage as surety 'for the debtors and principal guarantor of the debtors.' The mortgage was recorded.

On the 13th of March, 1901, a bill of sale upon which the controversy in the case turns was executed before a notary. The instrument recites that it was made by the Mercantile Society, Ltd., doing business under the firm name and style of Sucesores de J. M. Suarez y Compania, owner of the establishment, the bazaar 'Europa,' Don Manuel and Ramon Suarez y Cordero, represented by its managing and active partners as parties of the first part, and Mr. Edwin L. Arnold, cashier of the American Colonial Bank of Porto Rico, party of the second part. The bill of sale further recites as follows:

'First. The Society Sucesores de J. M. Suarez y Cia. now is debtor to the American Colonial Bank of Porto Rico in the sum of $4,800, due on the 21st of August, last, according to the promissory note which they executed, and, not being able to deliver the amount thereof, have offered to make payment thereof in mercantile stocks, according to the detailed inventory which they exhibit, subscribed by the society, and which they take with them bearing my signature and seal, and to which the creditor bank has manifested its conformity

'Second. That carrying into effect the sale of the stocks set forth in the inventory exhibited, Messrs. Suarez y Cordero, in the representation by which they act, transfer all of the said effects set forth in the said inventory to the creditor bank for the sum of $4,800, leaving the same in the possession of the bank, in payment of the said amount of the promissory note above mentioned.

'Third. Mr. Edwin L. Arnold accepts this deed, receives the inventory above mentioned, and in consequence thereof says that he leaves in the said establishment of the sellers, the 'Bazaar Europa,' all the stock and goods which such persons have sold to him in payment for the $4,800 which they owe to the American Colonial Bank, in order that, for the account and commission of the latter, they proceed to realize from the said goods, prices not to be less than those fixed in the inventory, and they are obliged to present to the bank weekly account of sales they may make, together with the value in cash thereof, until the complete realization of the same takes place.'

It was signed by Ramon Suarez y Cordero, Manuel Suarez y Cordero, and Edwin L. Arnold, cashier.

The district court found, as we have already said, that the bill of sale was taken as additional security, and that there was no agreement or understanding that it should be considered as full payment of the main loan or debt; that Arnold never saw the stock of goods or any part of it, nor went to the store of the firm, and that the firm retained possession of the goods. Neither of the appellants took part in the execution of the instrument, and it is found that no testimony was offered charging them or any of the members of the company with fraudulent conduct. It is also found by the district court that subsequently the firm went into bankruptcy, that the stock of goods was scheduled as part of the assets of the firm, and that the bank received no part of the assets collected by the trustee in bankruptcy, and distributed among the general creditors of the firm. The district court adjudged that the bank was entitled to foreclose its mortgage, and entered a decree accordingly.

Mr. Francis H Dexter for appellants.

Mr. N. B. K. Pettingill for appellee.

Statement by Mr. Justice McKenna:

Mr. Justice McKenna delivered the opinion of the court:

Notes