1. Parol evidence is admissible in equity to show that a
certificate of stock issued to a party as owner was delivered to
him as security for a loan of money. A court of equity will look
beyond the terms of an instrument to the real transaction, and when
that is shown to be one of security and not of sale, it will give
effect to the actual contract of the parties.
2. The rule which excludes such evidence to contradict or vary a
written instrument does not forbid an inquiry into the object of
the parties in executing and receiving it.
The facts are stated in the opinion of the Court.
MR. JUSTICE FIELD delivered the opinion of the Court.
In 1864, between the 7th and 27th of September, the appellant,
Samuel R. Brick, a resident of Philadelphia, purchased eight
hundred and ninety-two shares of stock in the Washington Gaslight
Company, a corporation existing in the District of Columbia,
charted by Congress, paying for the same $17,277. Of this stock,
two hundred and fifty shares were afterwards transferred by his
direction on the books of the company to his brother, Joseph K.
Brick, a resident of Brooklyn, N.Y., to whom a certificate was
issued and from whom a check for $5,250 was received. The question
presented is whether this transaction between the brothers was a
sale of the stock or a loan of money on its pledge. Joseph K. Brick
is dead, and the evidence as to the character of the transaction is
conflicting, as is generally the case when the object of parties in
the execution of instruments is not expressed in writing and is
sought years afterwards to be shown by parol. But notwithstanding
such conflict, there are certain facts established, indeed not
controverted, which must control our judgment.
In the first place, it appears that in September, 1864, the
appellant was anxious to purchase stock in the gas company. He had
become acquainted with its affairs, and knew that it intended to
apply to Congress for power to increase its capital,
Page 98 U. S. 515
and was convinced that with such increase the value of the stock
would be greatly enhanced. He expressed this conviction in letters
to his son which the complainants produced, and, acting upon it, he
purchased to an extent beyond his means of immediate payment, and
gave his note for a portion of the purchase money.
In the second place, the appellant applied to his brother Joseph
for a loan of money, at the time he was expressing his anxiety to
buy the stock of this company, and his brother replied that the
money could be raised on call. It was not many days afterwards when
a check for the $5,250 was sent.
In the third place, in May and July, 1866, Joseph stated under
oath that he was not the owner of the stock. In the previous year
he had given to the board of assessors of Brooklyn a statement of
his personal property, in which he had specified the stock of the
gaslight company valuing it at $5,000, and was accordingly assessed
upon it. In May, 1866, he made oath that he had been thus
erroneously assessed, and that the error had arisen from his having
inserted in the statement the stock held by him for his brother, in
which he had no pecuniary interest. The assessment was accordingly
corrected. On the same day, he wrote to his brother what he had
done, saying that he had told the assessors he held the stock for
the latter's benefit, and requesting him to advise the president
and secretary of the company that such was the case. And in the
statement of his personal property for that year, made in July
following, he omitted the stock in question and verified the
statement with his oath that he had no personal property not
included in it.
So far from questioning the character of this testimony, the
complainants refer to it in their bill, annex copies of the oaths
taken, and observe that the stock was purchased to aid Samuel in
some matters of business, and was often spoken of as his, though
not so in fact, but that being unproductive, the oaths were made by
Joseph in order to get rid of the tax assessed against him and make
Samuel pay it, as if this circumstance could possibly extenuate
what, if not true, was simple perjury.
This bill is signed by the widow of the deceased, and the
Page 98 U. S. 516
suit is prosecuted by her and the executors of his will; but we
do not think that the evidence in the case justifies the reproach
they would cast upon his name and character. There are casual
observations made by him, sometimes in loose conversation, mostly
in friendly letters, which, unexplained, would indicate that he was
owner instead of mortgagee of the stock, expressions not at all
unnatural where one holds the absolute title to property; but there
is nothing in them which overcomes the weight of his affirmation
under oath, supported as that is by all the attendant
circumstances.
We are satisfied that the certificate of the two hundred and
fifty shares was issued to the deceased as security for a loan, and
not upon a purchase. It is competent to show by parol what the
transaction was. In the late case of
Peugh v. Davis,
96 U. S. 336,
we stated the doctrine of equity on this subject, where an
instrument was in form a conveyance, but was in fact intended as a
security, and though the instrument there was a deed of real
property, the principle applies when the instrument purports to
transfer personal property. A court of equity, we there said,
"looks beyond the terms of the instrument to the real
transaction, and when that is shown to be one of security, and not
of sale, it will give effect to the actual contract of the parties.
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 to contradict or vary a written instrument has
reference to the language used by the parties. That cannot be
qualified or varied from its natural import, but must speak for
itself. The rule does not forbid an inquiry into the object of the
parties in executing and receiving the instrument. Thus, it may be
shown that a deed was made to defraud creditors, or to give a
preference, or to secure a loan, or for any other object not
apparent on its face. The object of parties in such cases will be
considered by a court of equity; it constitutes a ground for the
exercise of its jurisdiction, which will always be asserted to
prevent fraud or oppression and to promote justice."
Hughes v.
Edwards, 9 Wheat. 489;
Russell v.
Southard, 12 How. 139;
Taylor v. Luther, 2
Sumn. 228;
Pierce v. Robinson, 13 Cal. 116.
Page 98 U. S. 517
As in our opinion the appellant is the owner of the stock in
question, and his brother held it merely as collateral security for
the $5,250 loaned, it is unnecessary to consider what, if any,
effect is to be given to the decree obtained in the former case of
Samuel Brick against the executors of the deceased. Assuming that
the district court never acquired jurisdiction over the executors
resident in the State of New York, the situation of the parties
remains as previously, and upon payment of the loan with interest,
after proper credits for the dividends received, the appellant will
be entitled to the possession of the certificate. The present suit
proceeds upon the theory that the stock belongs to the estate of
the deceased, and is not held as security. It seeks to enforce a
claim of ownership to the property, and not the payment of the loan
by its sale.
The decree must therefore be reversed with directions to the
court below to dismiss the bill, and it is
So ordered.