Supreme Court of United States.
*229 Mr. Francis H. Dexter for appellants.
Mr. N.B.K. Pettingill for appellee.
MR. JUSTICE McKENNA, after making the foregoing statement, delivered the opinion of the court.
Appellants, to sustain their contention that the bill of sale *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 *231 proved. This court said in Peugh v. Davis, 96 U.S. 332, 336, and repeated it in Brick v. Brick, 98 U.S. 516: "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's Assignees v. Strum, 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 Districts 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 et al. 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 *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 section 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 section 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.[1a]
Horton v. Robert seems to interpret the code as permitting *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 & Co. 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 *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 Maria 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 *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, &c.
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.
[1] "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 significance of the 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.
[1a] 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 or 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 and Codes of Porto Rico, 1902.
