Mechanics Bank of Alexandria v. Lynn
26 U.S. 376 (1828)

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U.S. Supreme Court

Mechanics Bank of Alexandria v. Lynn, 26 U.S. 1 Pet. 376 376 (1828)

Mechanics Bank of Alexandria v. Lynn

26 U.S. (1 Pet.) 376

APPEAL FROM THE CIRCUIT COURT

FOR THE COUNTY OF ALEXANDRIA

Syllabus

A court of equity ought not to decree specific performance of a contract to the letter where, from change of circumstances, mistake, or misapprehension it would be unconscientious so to do. The court may so modify the agreement as to do justice as far as circumstances will permit, and refuse specific execution unless the party seeking it will comply with such modifications as justice requires.

If a bill charges a defendant with notice of a particular fact, an answer must be given without a special interrogatory to the matter. But a defendant is not bound to answer an interrogatory not warranted by some matter contained in a former part of the bill.

When a judgment debtor comes into the court asking protection on the ground that he has satisfied the judgment, the door is fully open for the court to modify or grant the prayer upon such conditions as justice demands.

The appellee filed his bill on the chancery side of the Circuit Court for the County of Alexandria in the District of Columbia against the Mechanics Bank of Alexandria to enjoin the bank from proceeding upon a judgment at law which the bank had obtained against him and upon which an execution had issued and he had been taken and confined.

The bill stated that the judgment which had been obtained against the complainant was for what is called, according to the bank phrase, "an overdraw," amounting to $1,573.85, and that after this judgment had been obtained, he had made a deed of trust to Thomas F. Mason to secure the payment of his debts, and that this judgment against him was among the first to be paid, and also that the security provided in the deed was ample for that object.

The bill then states that the complainant, after this deed had been made, entered into a settlement with the bank of the various claims which they had against him, and agreed with them upon certain modes of payment of his debts, and among others of the judgment of $1,573.85 for the overdraw. That this $1,573.85 was to be paid out of the trust fund conveyed to Mr. Mason; and as an evidence of it, the bill refers to the account stated in the written settlement, in which the defendant Lynn is charged with the judgment for the overdraw, and credited by "the security in deed to Mason for overdraw."

The bill alleges also that in pursuance of this settlement, the complainant carried into effect the terms of the said settlement, and that everything due from him to the bank was satisfied,

Page 26 U. S. 377

except the sum of $3,700, which was to be secured to the satisfaction of the bank; and that so far as respected this $3,700, he had offered security, such as the committee of the bank had considered ample, and such as the bank ought to have accepted, but which they refused to accept.

The bill then alleges that notwithstanding this settlement and the fulfillment of it on the part of the complainant, the bank had issued an execution against him upon the judgment for "the overdraw," and had confined him in the bounds of the jail under the execution, and prayed he might be relieved from his imprisonment and that the bank should look to the security provided in the deed of trust to Mason and to that fund only. Upon this bill an injunction was granted, and the complainant was released from his confinement under the execution.

The appellants filed an answer to this bill, and among other things stated that they had agreed upon a settlement with the complainant of the various claims which the bank had upon him. That they were very desirous of securing the payment of these claims, and in order to effect the said settlement, they had given up to the complainant $784,04, and had agreed to take his bank stock and property at prices above their value, and had also agreed to take their payment for "the overdraw" out of the trust fund in Mason's hands, provided they could have had the full benefit thereof. They admit that in pursuance of this agreement the defendant Lynn did transfer to the bank his stock and lands leaving nothing unpaid, but the judgment for "the overdraw," and the sum of $3,700 which was to have been secured to the satisfaction of the bank. They refer to the articles of agreement to show that the security to be given for this $3,700 was to be such as was satisfactory to the board of directors, and the answer states that it never was secured to their satisfaction, and that no tender or offer of security was ever made that ought to have been acceded to by the bank, and that the bank was right in refusing the security offered.

The answer also states that as to the judgment for the overdraw, it never was satisfied, and that the deed of trust to Mason was entirely inoperative as to this debt, and was made upon such terms that the bank could not accede to them. That their cashier, immediately after the agreement had been entered into between Lynn and the bank, had called upon the trustee, Mr. Mason, to know whether the bank might expect payment from that fund, and was informed by him that one of the conditions of the deed was that the creditors accepting the benefit of the deed should within six months of the date of it release to Lynn all claims and demands which they had upon him; that this deed had been executed on 16 November, 1820, and

Page 26 U. S. 378

that the agreement of Lynn with the bank had been executed on 19 May, 1821, so that the six months had in fact expired before the said agreement had been made. The trustee therefore informed the cashier that the bank was not entitled to any benefit under that deed, and that they could not reckon upon that fund for the payment of their said judgment. The answer then states that the bank, finding it was not entitled to any benefit from the trust funds, and seeing no other means of payment from Lynn, had resorted to an execution upon their judgment, and he was accordingly taken in execution and remained in execution nearly a year, until it became necessary for him to take the oath of insolvency, and under these circumstances he obtained the injunction, and they prayed that it might be dissolved.

The deed of trust of Mason bearing date 16 November 1820, was filed as an exhibit with the bill of Lynn, the complainant. This deed has in it the following proviso, viz.,

"Provided always however, and it is hereby expressly required that each and every of the aforesaid creditors, before they receive the benefit of this deed, shall sign and execute a full and complete discharge from all claims and demands whatsoever against the said Adam Lynn, and the period of six months shall be and is hereby allowed them from the date of this instrument to come in and elect and sign such discharge, and the dividend or share to which each and all of those who may refuse or neglect for the space of six months as above allowed, for that purpose, to sign and execute such discharge as aforesaid, shall go and be disposed of for the benefit of such of the aforesaid creditors as shall accept of the terms of this deed, and in the order above directed."

The agreement entered into between the defendant Lynn and the bank, was also made an exhibit with the bill. It bears date on 29 May, 1821, and so far as respects the matter in dispute is as follows, viz.,:

"ARTICLE 1. That the account of A. Lynn, with the Mechanics Bank be stated as follows:"

To A. Lynn's stock note $15,360 00

Mrs. Buckland and Mrs. Coryton's 125.00

A. Lynn's note endorsed R. Yount 11,100.00

Interest on do. to 4th May, 1820 320.00

Interest on do. 36.54

Overdraw 1,573.85

Five protests 8.75

----------

$29,880.19

By A. Lynn's stock $21,014.50

Discount 10 percent 2,101.45

---------- 18,913.05

By Mrs. B. & Mrs. C. do. 357.50

Discount 10 percent 35.75

---------- 321.75

Interest on $3,553, difference between

stock and stock note 434.00

123 acres of land at $25 3,087.50

House and lot 1,500.00

Security in deed to Mason for overdraw 1,572.85

Balance 4,049.98

----------

$29,880.19

Page 26 U. S. 379

"ARTICLE 2d. The above balance, except $349.98, say $3,700 to be secured by A. Lynn to the satisfaction of the board, and to be paid in one, two, and three years."

Depositions were taken on the part of the bank to prove that the committee of the bank who entered into the settlement with the defendant Lynn, were not authorized to decide upon the security which he had offered for the balance of $3,700, and that they did not in fact agree to accept the security.

Upon the final hearing of the case in the circuit court on the bill, answer, exhibits, and depositions, the court ordered a perpetual injunction, and to this decretal order an appeal was entered to this Court by the Mechanics Bank.

Page 26 U. S. 381

MR. JUSTICE THOMPSON delivered the opinion of the Court.

Adam Lynn, the complainant in the court below, filed his bill for an injunction to restrain the Mechanics Bank of Alexandria from proceeding upon a judgment which it had recovered against him at law for $1,573.85. A perpetual injunction was decreed, to reverse which the present appeal is brought.

The bill and answer contain many matters not necessary now to be noticed. The grounds upon which the application for an injunction was placed were that on 29 May, 1821, a settlement was made between the parties of various matters which had been for a long time in dispute between them, among which was the judgment now in question. In the account stated, which formed the basis of that settlement, Lynn is charged with this judgment, which is there called "the overdraw," and credited by security in deed to Mason for the same. Upon this statement of the account, there was a balance of $8,700 found in favor of the bank, for which security was to be given. This may, however, be now laid out of view. For although it appears that some difficulty arose with respect to the security for this balance, yet it is alleged in the bill that

Page 26 U. S. 382

it was afterwards paid to the bank, and this is not denied, but substantially admitted in the answer. And the whole arrangement upon that settlement was carried into execution except that which related to the judgment now in question.

It is contended on the part of Lynn that the security in the deed to Mason was a complete discharge by the bank of this debt. And whether it is so to be considered is the only question necessary now to be noticed.

The deed of trust given by Lynn to Mason bears date 16 November, 1820, and provides in the first place for the payment of judgment creditors, then for certain enumerated creditors, and finally the surplus to be paid to the Mechanics Bank of Alexandria in discharge of notes discounted for Lynn. This deed contains the following proviso,

"Provided always and it is hereby expressly required that each and every of the aforesaid creditors, before they receive the benefit of this deed, shall sign and execute a full and complete discharge from all claims and demands whatever against the said Adam Lynn. And the period of six months shall be and is hereby allowed them from the date of this instrument to come in and elect and sign such discharge."

It will be seen from comparing the dates of this deed and the settlement made between the parties that the six months limited for the creditors to come in and accept of the provision thereby made had expired when the settlement took place, and the bank therefore, according to the terms of the deed, was precluded from taking any benefit under it.

The bill alleges that the provision made by the trust deed for the payment of this debt was amply sufficient. The bank denies that the judgment has ever been satisfied, and alleges that on application to the trustee Mason for the benefit of the provision thereby made, it was refused because the time had expired within which the creditors were to come in and accept of the benefit of it.

Was this, then, such a settlement and discharge of this judgment as under the circumstances will conclusively bind the bank and turn it over to this trust fund alone for satisfaction of the debt?

The complainant in the court below asks the aid of a court of chancery to restrain the bank from enforcing a judgment at law, and if this is an unconscientious request, it would be inconsistent with the course of a court of equity to grant it.

The complainant may be considered as asking the specific execution of an agreement by which the bank stipulated to accept in satisfaction of this judgment, the provisions made by Lynn for his creditors in the deed of trust.

Page 26 U. S. 383

But the court ought not to decree performance according to the letter when from change of circumstances, mistake, or misapprehension it would be unconscientious so to do. The court may so modify the agreement as to do justice as far as circumstances will permit, and refuse specific execution unless the party seeking it will comply with such modification as justice requires.

It cannot be presumed that the bank in point of fact knew that the time had expired within which creditors were allowed to come in and accept of the trust fund. Nor ought it to be presumed that this circumstance was adverted to by Lynn, as it would be charging him with a fraudulent design of imposing upon the bank an unavailable security.

Whether it was available or not is a proper subject of inquiry under the pleadings. The bill alleges that the provision made by the deed for payment of this debt was abundantly sufficient.

This the answer denies because the complainant, by the limitation of the time within which the creditors were to come in, had debarred the bank of availing itself of that security, and that the trustee had excluded this debt on that account. And all that the bank requires is that the complainant should order his trustee Mason to pay this debt out of the trust fund.

It is said, however, that the bank is chargeable with notice of this deed and all its provisions, and has therefore accepted the fund at its own risk, and particularly as notice is not denied in the answer.

There is nothing in the pleadings or proofs showing notice in fact, and the deed was not recorded so as to charge the bank with constructive notice. There may be reasonable grounds to conclude that the bank had information with respect to the trust fund before it agreed to accept it as a substitute for the judgment. But actual knowledge of this limitation cannot reasonably be presumed, as it was a fund from which no benefit could be derived, and the bill contains no charge calling upon the bank for an admission or denial of notice. This was not required by reason of the special interrogatory put in the bill. If the bill had charged the bank with notice, an answer must have been given without such interrogatory. But a defendant is not bound to answer an interrogatory not warranted by some matter contained in a former part of the bill, Mitford 44. and if the bank was called upon by this interrogatory to admit or deny notice, no answer having been given, exception should have been taken to the answer for insufficiency.

Nothing, therefore, appears which would have precluded the

Page 26 U. S. 384

bank from the aid of a court of chancery; even was its complainant seeking relief against the conclusive operation of this settlement, when the consideration for which the judgment was to be discharged has entirely failed, and that by the act of Lynn himself. But when the judgment debtor comes into the court asking protection on the ground that he has satisfied the judgment, the door is fully open for the court to modify, or grant his prayer, upon such conditions as justice demands.

The arrangement between the parties was executory; no release or discharge of the judgment was given. The account stated was the basis only on which the settlement was made, and to be carried into execution. And it must have been the intention of both parties, that the bank should be let in to take the benefit of the trust fund. And justice requires that this should still be done, as far forth as it can be consistently with the safety of the trustee, and the rights of other creditors entitled to the benefit of that fund.

The situation of that fund, however, and what has been done under the trust deed, could not be properly inquired into, under the pleadings in this cause; and without other parties before the court.

The proper course for the bank would have been, to have filed a cross-bill against the complainant, and such other parties, as were necessary to bring that subject completely before the court and enable it to make a final determination of the matter in dispute. If the assent of Lynn is all that is necessary to enable the bank to avail itself of the trust fund, justice requires that this should be given, before the bank is entirely restrained from proceeding on its judgment at law. And it is no doubt within the legitimate powers of a court of chancery under circumstances like the present, to require such assent, and modification of the settlement, before granting a perpetual injunction.

But the rights of other creditors, which may have attached upon this fund must not be lost sight of, with respect to which however, we have not before us, the means of judging.

We are accordingly of opinion that the decree of the court below granting a perpetual injunction be reversed. And that the cause be sent back with directions to the court to continue the injunction, until the bank has a reasonable time to file a cross-bill. And that the continuance of the injunction be subject to such further order of the court as equity and justice may require.

This cause came on, &c., on consideration whereof it is decreed and ordered by this Court that the decree of said circuit

Page 26 U. S. 385

court in this cause granting a perpetual injunction be and the same is hereby reversed and annulled, and it is further ordered by this Court that the cause be remanded to the said circuit court with directions to continue the injunction until the bank has a reasonable time to file a cross-bill, and that the continuance of such injunction be subject to such further orders of the court, as equity and justice may require.

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