The provisions of the Spanish Civil Code, which was in force in
Porto Rico until 1902, to the effect that the obligations of a
contract must be complied with according to their terms and that
evidence cannot be introduced to vary them are practically the same
as the principles of the common law, and are subject to similar
well recognized exceptions.
The face of an instrument is not always conclusive of its
purpose; and, in equity, extrinsic evidence is admissible to show
that a conveyance, absolute in form, is intended as security, and
in this case, testimony addressed to the consideration of the bill
of sale, and showing that, although on its face the vendee agreed
to give up its debt, the real consideration was to help the vendor
and give the vendee additional security, would be admissible under
our own, as well as the Spanish, law, and
quaere whether
the Spanish law does not permit oral testimony, as to all the terms
of a contract upon an equal footing with the written instrument
itself, to an extent beyond that which our own law permits.
One guaranteeing a loan by mortgage is not released from the
guaranty because the loan is subsequently further secured by a bill
of sale of other property, absolute on its face but in fact given
as additional security, by the principal debtor.
In Porto Rico, one can mortgage an interest in a succession
after it has accrued notwithstanding it has not been actually
assigned or delivered to the mortgagor; this is not prohibited by
Articles 108 of the mortgage law, nor are Articles 110, 111 of that
law applicable thereto.
The liability of one who binds himself with others for the whole
debt extends to the whole, and not to a part of the debt.
3 P.R. 14 affirmed.
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
Page 214 U. S. 225
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,
Page 214 U. S. 226
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
twenty-first 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 percent 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
Page 214 U. S. 227
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 ___ percent 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. "
Page 214 U. S. 228
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 thirteenth 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
Page 214 U. S. 229
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. JUSTICE McKENNA delivered the opinion of the Court.
Appellants, to sustain their contention that the bill of
sale
Page 214 U. S. 230
was an absolute conveyance and accomplished payment of the debts
to the bank, quote provisions of the Spanish Civil Code which, it
is said, was in force in Porto Rico until 1902, which provides that
the obligations of contracts must be complied with according to
their terms, that their provisions, when clear and explicit, must
control, and that there can be no evidence of the terms of the
agreement other than the contents of the writing, unless "a mistake
or imperfection of the writing is put in issue by the pleadings,"
or its "validity" is the fact in dispute.{1}
But these are also the principles of the common law, and
absolutely necessary if the written instrument is to be given a
distinctive sanction of the agreement of the parties. But there are
well recognized exceptions. 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
Page 214 U. S. 231
proved. This Court said in
Peugh v. Davis, 96 U.
S. 336, and repeated it in
Brick v. Brick,
98 U. S. 514:
"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, the court further said,
has reference to the language used by the parties, and does not
forbid an inquiry into their object in executing and receiving the
instrument.
Hughes v.
Edwards, 9 Wheat. 489;
Russell v.
Southard, 12 How. 139;
Babcock v.
Wyman, 19 How. 289. In
Morgan v.
Shinn, 15 Wall. 105, the rule of equity was
enforced against the bill of sale of a vessel, though it was
enrolled and also insured in the name of the transferee.
See Livingston v.
Story, 11 Pet. 351.
It is not contended that the equitable rule is explicit in the
Porto Rican Code; but it is contended that the power to enforce the
rule is given by § 34 of the Act of Congress of April 12,
1900, which conferred upon district courts of Porto Rico, "in
addition to the ordinary jurisdiction of district courts of the
United States, jurisdiction of all cases cognizant in the circuit
courts of the United States," and that they should "proceed therein
in the same manner as a circuit court." The deduction from this is
that the district court, having the "ordinary jurisdiction" of both
circuit and district courts, may "proceed in the consideration of
any case within that jurisdiction on the same principles,"
depending on the nature of the case, as those courts may.
Appellee, however, says that it is not necessary to insist upon
that proposition, because the question presented is the "kind of
evidence" which the court was entitled to receive and consider, and
the case of
Horton v. Robert, 3 Castro's Decisiones de
Puerto Rico 410, 415, is adduced to sustain the decision of the
district court in admitting evidence to explain the bill of sale in
controversy. The English translation of the decision, given by the
appellee, is as follows:
"It seems that the defendant believes, and his whole
contention
Page 214 U. S. 232
is based on this belief, that, for a mortgage to be declared
usurious, the usury must appear from the document itself. Such an
affirmation would convert the law of usury into a dead letter, and
is directly in conflict with § 25 of the Law of Evidence of
Porto Rico. The appellee also presumes that the object of a written
contract cannot constitute the subject of investigation by a court,
upon examining into its validity, but that the court must presume
that it has been stated correctly in the contract itself. This
presumption of the appellee is contrary to the second subdivision
of § 101 of the Law of Evidence of Porto Rico, and to the law
established by the American courts. No matter what motive or
consideration is expressed in a written contract, the truth of its
provisions is not conclusively presumed, but the same can always be
the subject of investigation before a court, and therefore proof
can always be proposed and received in order to demonstrate what
was the true motive or consideration of the obligation which may be
established.
See also paragraph 38 of Section 102 of the
Law of Evidence of Porto Rico."
The law of evidence referred to is inserted in the
margin.{2}
Horton v. Robert seems to interpret the Code as
permitting
Page 214 U. S. 233
the application of the equitable rule, and defines the word
"consideration" in § 101 to comprehend the motive or purpose
of the instrument. If there is any decision or statute which
militates with this conclusion, we feel sure that appellants would
have cited it. But we need not distinguish between motive and
consideration. The testimony was addressed to the consideration of
the bill of sale in its strictest sense. On the face of the
instrument, the bank engaged to give up its debt for the stock of
goods. This, then, constituted the consideration as expressed, but
the testimony explaining it showed that it was not the real
consideration, that the real consideration was to keep Suarez &
Company a going concern, and to give the bank additional security.
More than this it is not necessary to decide, and we shall not
consider, therefore, the contention of appellee and the citations
to support it, that the law of Spain
"permits what our own does not -- the admission of oral
Page 214 U. S. 234
testimony regarding all the terms of a contract upon equal
footing with the writing which evidences it."
It is, however, contended that, if it should be held that the
bill of sale did not pay or discharge the debt, appellant Marria de
las Nieves was (a) but a guarantor, and her liability must be
determined as such; (b) the deed of sale was but a novation; (c) it
constituted, under all the circumstances, a modification of the
security, and released her, the guarantor.
All these objections seem (we say seem because the argument to
support them is somewhat involved) to rest on the contention that
the bill of sale was not taken as an additional security, and is
therefore answered by what has been said. Whether she was a
guarantor or not, that could not make a mortgage of her real estate
any less effective, or make the bill of sale something other than
what it was.
Joyce v. Auten, 179 U.
S. 591.
It is next contended by appellants that the bank
"acquired no specific right or interest in the inheritance or
participations of appellant Maria de las Nieves Cabrera y Pruna in
the estate of her deceased mother,"
because, as it is further contended, "that her interest in the
estate of her mother had not yet been divided or assigned." There
was an allegation in the bill that such interest was covered by the
mortgage, which was not denied. Besides, it does not appear that
the point was made in the lower court, and counsel say here, after
quoting some very general provisions of the Civil Code of Porto
Rico, and Articles 110 and 111 of the mortgage law, "as we more
confidently rely upon the other points in this case, we do not
enter into a discussion of the law bearing on this point." We leave
the point where counsel has left it. We do not feel called upon to
compare the provisions which he has cited with those cited by
counsel for appellee, which, it is contended, have a contrary
effect, and establish that an heir or devisee has an interest in
the inheritance before the division, which he may sell or
mortgage.
It is enough to say that the provisions quoted by appellants
Page 214 U. S. 235
do not sustain their contention. They quote Article 1874 of the
Civil Code, in force at the time the mortgage was given, as
confining a mortgage contract to real property and to rights in
real estate which can be alienated according to law. There is no
attempt to define such rights other than to quote Article 108 of
the mortgage law as follows:
"Article 108. The following are not mortgageable:"
"
* * * *"
"5. The property right in things which, although they will be
owned in the future, are not yet recorded in the name of the person
who will have a right to own them."
But the interest of Maria de las Nieves in her mother's estate
had accrued, and because it was an undivided interest did not make
it a "property right" to be "owned in the future."
Articles 110 and 111 of the mortgage law are clearly not
applicable. They only refer to what incidents of an estate the
mortgage of it extends, as improvements, crops, rents, etc.
It is finally contended that, if Maria de las Nieves is
responsible at all, it is only for a part of the debt. This
contention is answered in effect by what we have already said.
Whether as principal or surety, she bound herself to the bank for
the whole debt -- mortgaged her property for the whole debt -- and
her liability extends to the whole debt.
Decree affirmed.
"Obligations arising from contracts have legal force between the
contracting parties, and must be fulfilled in accordance with their
stipulations."
"Article 1091."
"Contracts shall be binding, whatever may be the form in which
they may have been executed, provided the essential conditions
required for their validity exist."
"Article 1278."
"If the terms of a contract are clear and leave no doubt as to
the intentions of the contracting parties, the literal sense of its
stipulations shall be observed."
"Article 1281."
"Commercial contracts shall be executed and complied with in
good faith, according to the terms in which they were made and
drafted, without evading the honest, proper, and usual
signification of written or spoken words with arbitrary
interpretations, nor limiting the effects which are naturally
derived from the manner in which the contractors may have explained
their wishes and contracted their obligations."
Article 57, Code of Commerce, 1897, p. 24.
"SEC. 25. When the terms of an agreement have been reduced to
writing by the parties, it is to be considered as containing all
those terms, and therefore there can be between the parties and
their representatives or successors in interest no evidence of the
terms of the agreement, other than the contents of the writing,
except in the following cases:"
"1. Where a mistake or imperfection of the writing is put in
issue by the pleadings."
"2. Where the validity of the agreement is the fact in
dispute."
"But this section does not exclude other evidence of the
circumstances under which the agreement was made or to which it
relates, as defined in section twenty-eight, or to explain an
intrinsic ambiguity, or to establish illegality or fraud. The term
'agreement' includes deeds and wills, as well as contracts between
parties."
"SEC. 28. For the proper construction of an instrument, the
circumstances under which it was made, including the situation of
the subject of the instrument, and of the parties to it, may also
be shown, so that the judge be placed in the position of those
whose language he is to interpret."
"SEC. 101. The following presumptions, and no others, are deemed
conclusive."
"
* * * *"
"2. The truth of the facts recited, from the recital in a
written instrument between the parties thereto, or their successors
in interest by a subsequent title; but this rule does not apply to
the recital of a consideration."
"
* * * *"
"SEC. 102. All other presumptions are satisfactory, if
uncontradicted. They are denominated disputable presumptions, and
may be controverted by other evidence. The following are of that
kind:"
"
* * * *"
"38. That there was a good and sufficient consideration for a
written contract."
"
* * * *"
"SEC. 107. No evidence shall be considered as conclusive or
unanswerable unless so declared by this act."
Laws of Porto Rico, 1905, pages 73, 74, 87, 88, 90.
In the same connection should be considered Article 1186 of the
Civil Code of Porto Rico, which reads as follows:
"Public instruments are evidence, even against a third person,
of the fact which gave rise to their execution, and of the date of
the latter."
"They shall also be evidence against the contracting parties and
their legal representatives with regard to the declarations the
former may have made therein."
Revised Statutes & Codes of Porto Rico, 1902.
