Farmers' Bank of Virginia v. Groves, 53 U.S. 51 (1851)

U.S. Supreme Court

Farmers' Bank of Virginia v. Groves, 53 U.S. 12 How. 51 51 (1851) Farmers' Bank of Virginia v. Groves

53 U.S. (12 How.) 51

APPEAL FROM THE CIRCUIT COURT OF THE

UNITED STATES FOR THE DISTRICT OF LOUISIANA

Syllabus

The principles of law decided in this case are so dependent upon the facts that a succinct statement of the latter becomes necessary.

Collier was in possession of two drafts drawn by King upon Groves and accepted by him for the accommodation of King. Collier pledged these drafts to the Farmers' Bank of Virginia as collateral security for a debt which he owed the bank.

The drafts not being paid at maturity, the bank sued both Groves and King and recovered judgments against them, which were liens upon their property.

Collier and King then agreed that if Collier were to purchase King's property at a certain sum, he would return his drafts to him and free him from the bank. To this agreement Groves was a witness, and the purchase was accordingly made.

Collier and the bank then agreed that the bank should give him time and he should

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give additional collateral security to the bank and mortgage his property, first reducing the liens of prior mortgages down to a certain sum. The bank was moreover to surrender the collateral securities previously received. The mortgage was made by Collier and the collateral securities surrendered to him by the bank.

After this the bank had no right to prosecute the judgment which it had obtained against Groves.

By the first agreement made between King and Collier, to which Groves was privy, Collier exonerated Groves, as far as it was in his power, and in consequence of the second agreement between Collier and the bank, Collier became reinvested with the whole control of the matter and his previous exoneration of Groves became immediately operative. Groves was therefore entirely discharged from all responsibility.

The failure of Collier to comply with his contract with the bank did not prevent this exoneration of Groves from being effectual.

The facts in the case are set forth in the opinion of the Court, to which the reader is referred.

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MR. JUSTICE NELSON delivered the opinion of the Court.

The case is somewhat complicated and confused, and it will be necessary to state the material facts to be found in it in order to present clearly the legal questions involved, and upon which the decision must depend.

On 13 March, 1837, Thompson L. King drew two drafts, amounting in the aggregate, to fifteen thousand four hundred and ninety-seven dollars, in favor of John E. Hunter, upon Moses Groves, who duly accepted the same. The liability of Groves upon these drafts to the bank constitutes the main point in the controversy. The drafts were subsequently, but before maturity, endorsed by Hunter to Lewis A. Collier, and by him passed to the Farmers' Bank of Virginia, the appellants, as collateral security for an indebtedness to the Bank. Groves was an accommodation acceptor for the benefit of King, the drawer.

The bank recovered judgment against Groves for the amount of the drafts in the Madison District Court of Louisiana, December 1, 1840, and which was recorded in the office of the parish judge on the same day, in the Parish of Madison, where the defendant resided, so as to operate as a judicial mortgage on his real estate and slaves. The bank recovered judgment also against King, the drawer, on one of the drafts, and at the same time held other judgments and demands against him in which Collier was interested to the amount of some fifteen thousand dollars. These judgments and demands had been pledged to the bank by Collier as collateral security for his indebtedness.

On 26 February, 1841, a written agreement was entered into between Collier and King in which, after reciting the several judgments and demands above stated and held by the bank against King in which Collier was interested, and also

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reciting and describing certain plantations and lands belonging to the said King, containing in all about twenty-two hundred acres and a large number of slaves on the same, it was agreed, among other things, that if the said Collier should be permitted to purchase the said property at sheriff's sale on any of the aforementioned judgments for his own account or for the account of the bank at a sum not exceeding the whole amount of the several judgments and demands or for a less sum, that then and in that case the said property should be received by him in satisfaction and discharge of the same, and the evidences of the several debts and demands thus held by him and the bank should be delivered up to the persons entitled to the same and full discharges given, and especially to Moses Groves for and on account of the judgment obtained by the Farmers' Bank of Virginia against him.

There are several other provisions and stipulations in said agreement, but as they have no necessary bearing upon the material questions in the case, it is unimportant to notice them. Groves was a witness to this agreement.

In pursuance of this arrangement, Collier became the purchaser of the property on 13 March, 1841, for the sum of $32,515, and received a deed of the same from the sheriff on the sixteenth of the month thereafter.

On 1 December, 1841, the Farmers' Bank of Virginia proposed to Collier through their authorized agent an arrangement of his indebtedness to them, as follows:

1. The bank to give him a credit on the same of one, two and three years. 2. And surrender all the collateral securities which they had received from him. And Collier, on his part, 1. to pay all the expenses of prosecuting the collateral securities to the attorneys in whose hands they are; 2. to give a mortgage, which was to operate as a judicial mortgage in favor of the bank, on all the property which he held in Concordia Parish; 3. to assign to the bank certain notes, as collateral security, which he held against Dix & Glascock, amounting to $9,000; 4. to have all the mortgages that appear as encumbrances upon the property reduced by a discharge of record to an amount not exceeding thirty-five thousand dollars, besides those in favor of the Bank of Virginia and Lancaster, Denby & Company; and 5. to give three notes to the bank, one for $11,764.68, payable in twelve months after date, one for $12,470.57, payable two years after date, and one for $13,218.80, payable three years after date, amounting in the aggregate, to thirty-seven thousand four hundred and fifty-four dollars, five cents.

This is the substance of the proposition made by the agent and which was intended as instructions to F. H. Farrar, his

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attorney, under whose direction the mortgage was to be prepared and executed.

On 3 December, 1841, the mortgage was duly executed by Collier and delivered to Farrar and accepted by him on behalf of the bank.

It was recorded in the proper office, and a copy with the three notes transmitted by mail to the bank agreeably to the instructions.

On 20 April, 1843, the Farmers' Bank of Virginia applied to the judge of the Circuit Court of the United States in the District of Louisiana for an executor's process against the estate of Groves, he having died in December, 1841, praying that so much of his estate might be seized and sold as should be necessary to satisfy the judgment, which had been obtained by the bank against him December 1, 1840, and which we have already referred to, and an order was granted accordingly, whereupon Horace H. Groves, the son of the deceased and administrator of the estate, filed the bill in this case in the circuit court of the United States, setting out substantially the facts already recited and praying that the bank may be enjoined from proceeding to seize and sell any part of the estate, that the executory process may be set aside, and the bank decreed to enter satisfaction of the judgment of record.

The answer of the bank denies the authority of Collier to act for them in any settlement or discharge of the judgment or for any purpose in connection therewith. They also deny that they ever gave their assent to the alleged discharge of the debt for which the judgment was rendered or ever ratified or confirmed the acts and doings of Collier in relation thereto.

They further allege that Collier was indebted to them in the year 1837 in a large amount, and that he transferred to them the acceptances of Groves, mentioned in the bill, as far back as 1837 and before they reached maturity, as collateral security for his indebtedness. That they never intended to place the bills under the control of Collier, but held them as their own and prosecuted them to judgment. Nor did they ever allow him to take the charge and management of the judgment as their agent after it was recovered.

They further allege that being delayed in the collection of the collateral securities, and receiving no payments from Collier, they employed James W. Pegram, in November, 1841, as their agent, to call upon Collier at his home with instructions to obtain a more satisfactory arrangement of the debt against him. That it resulted in the extension of the time of payment on his giving the mortgage and notes referred to in the bill. They admit it was understood between their agent and Collier that

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the negotiable paper which had been transferred as collateral security was to be surrendered up to him, the security furnished by the mortgage being, as represented by him, sufficient to secure his indebtedness, and relying on his punctuality in the payment of the notes as they became due. That two of the notes provided for by the mortgage are already past due, and nothing paid by the said Collier; that the property covered by the mortgage is discovered to be liable under previous encumbrances to a large amount, which may render it insufficient for the payment of their debt. That said Collier has long since waived the assignment of the said judgment and consented that the bank might retain it as additional security.

The court below granted a preliminary injunction, and afterwards at the hearing on the pleadings and proofs confirmed the same and decreed, that satisfaction of the judgment against Groves should be entered of record.

Upon full consideration, we are of opinion this decree is right, and should be affirmed.

King, the drawer of the bills, was the principal debtor, as the acceptance by Groves was for his accommodation. He was therefore bound to provide for them and keep Groves harmless, and this he did, so far as the interest of Collier was concerned, by the agreement of 26 February, 1841, and subsequent purchase by Collier of the plantation and slaves in pursuance of its stipulations. The purchase and title of the property under the sheriff's sale, it was agreed, should be made and taken in satisfaction of this among other demands against King, and in order to complete the satisfaction, Collier bound himself to procure a discharge of the judgment which the bank had recovered upon the drafts and then held. Groves was privy and consenting to this arrangement between King and Collier and, as between the latter and him, when consummated, it constituted a valid defense to the drafts or judgment either in law or equity.

It is true, as the bank was not privy and consenting to the arrangement, their interest in the drafts was unaffected by it and they were still at liberty to enforce their judgment against Groves, if necessary to the payment of the debt for which the drafts had been pledged as security.

But on 3 December following they entered into an arrangement with Collier by which it was agreed that on the execution and delivery to them of three notes, payable in one, two, and three years, covering the whole amount of his indebtedness to the bank, together with a mortgage upon a large plantation and slaves, besides other real estate, as security for the payment, all the collateral securities previously held for the indebtedness should be given up to him. The notes and mortgage

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were executed and delivered accordingly, and the collateral securities surrendered, and the interest in them again exclusively vested in Collier, and in this way becoming the owner of the drafts and judgment against Groves, for which he had already received satisfaction and bound himself to procure a discharge from the bank, the agreement with King, the principal debtor, operated instantly as an extinguishment of the demand and placed it beyond the power of either Collier or the bank, or both of them together, to revive it by any subsequent arrangement. The defense of Groves, arising out of the agreement of King with Collier, attached immediately on the bank reinvesting Collier with their interest in the drafts, and would adhere to them into whosesoever hands they might pass. They were not only bills overdue, but had become merged in judgment against Groves.

It has been argued on behalf of the bank that Collier failed to comply with all the conditions upon which they stipulated to accept the mortgage and surrender the previous collateral securities, and especially in one important particular -- namely the discharge of record of existing encumbrances upon the property so as to reduce them to an amount not exceeding $35,000.

But there are several answers to this objection.

In the first place, the weight of the proof is that the agent, after an investigation and examination of these encumbrances, waived the discharge of record, being satisfied that they had been paid from the representation of Collier.

And in the second, no such ground of defense is set up in the answer, nor is there any allegation of imposition or fraud by Collier in the transaction. And in the third, assuming that there was, the bank could not avail themselves of it for the purpose of avoiding their part of the arrangement, and at the same time hold on to the mortgage as a security for Collier's indebtedness. There has been no surrender of the mortgage, on the part of the bank or offer to surrender and vacate the agreement. On the contrary, it is claimed by them as an available security held and relied on against Collier.

It may be that if a fraud had been committed upon the bank in the negotiation to substitute this mortgage for other collateral securities, upon a surrender of the mortgage and notes accompanying it to Collier on a discovery of the fraud, claiming to vacate the arrangement on this ground, their right to and interest in the securities surrendered, in the absence of any prejudice to the rights of third persons acquired in the meantime might revive, and in this way, the defense of Groves be overreached, the bank being thus remitted to their original rights. But be this as it may, as no such step has been taken, nor even claim of fraud set up in the pleadings, we are bound to regard the arrangement

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as valid and binding upon both parties, and if any fraud or imposition has been committed to the prejudice of the bank, they must look to him personally for compensation and redress. The rights acquired by each party to the securities exchanged must be taken to be such as were intended by the terms of agreement, and regarding the transaction in this light it is clear, even conceding, as is alleged, that Collier has since waived the surrender of the collateral securities for which he had stipulated or has since reassigned them to the bank, the defense of Groves is still complete. These drafts and judgment upon them became extinguished the moment the agreement between the bank and Collier was carried into execution. They then became the exclusive property of the latter, in which event his agreement with King, the principal debtor, worked an immediate satisfaction.

It has also been argued that King has failed to fulfill all the stipulations in his agreement with Collier, and hence that it is not available to Groves. But this is a question exclusively between him and Collier, who, for aught that appears, is content with the agreement in the way it has been carried into execution. He purchased the property and took the sheriff's deed as is alleged, and not denied, went into the possession and enjoyment of the estate and still holds it. And if he has not acquired all the property stipulated for in his agreement, he must look to King personally for compensation and redress. He has chosen to accept the execution of the agreement, and must be deemed bound by its stipulations.

In every view we have been able to take of the case, we are of opinion the decree of the court below is right and should be

Affirmed.

Order

This cause came on to be heard on the transcript of the record from the Circuit Court of the United States for the District of Louisiana and was argued by counsel. On consideration whereof, it is now here ordered, adjudged, and decreed by this Court that the decree of the said circuit court in this cause be and the same is hereby affirmed with costs.