City National Bank v. Hunter/Opinion of the Court

by Melville Fuller

United States Supreme Court

129 U.S. 557

City National Bank  v.  Hunter

The action of the parties at Will's Point, on the 22d day of May, 1880, so far carried out and consummated the agreements of March 20th that neither the bank nor Hunter, Evans & Co. could thereafterwards insist upon superiority of lien as between themselves; and we are satisfied, upon a careful review of the evidence, that Hunter, Evans & Co. were not entitled to rescind the agreements, or treat them as annulled, on the ground of fraud in the obtaining of their execution. Many circumstances are clearly made to appear which rendered it natural for Hunter, Evans & Co. to desire to make just such agreements as they did make, and are inconsistent with the theory that they did not act with their eyes open. Although they claimed a first lien upon the larger part of the cattle in question, yet this was contested by the bank on the ground of the invalidity thereof under the statute, as against its mortgage. And, while it is denied on the part of Hunter, Evans & Co., the evidence of the vice-president of the bank is explicit to the effect that the line of credit extended to O'Neal by the bank was on the strength of the agreement of William Hunter to guaranty the payment of O'Neal's drafts; and that, as to the particular draft which created the indebtedness due the bank, the bank neglected to take a bill of lading, because it relied on the statement of Hunter that the draft would be honored. Questions such as these demanded solution, and it is not to be wondered at that Hunter, Evans & Co., as they say in their bill, to avoid 'litigation, expense, and loss,' entered into these contracts. Again, a portion of his alleged indebtedness to Hunter, Evans & Co. had always been disputed by O'Neal. O'Neal had more cattle than those named in the bill of sale of Hunter, Evans & Co., was believed to have other property, and there is considerable evidence tending to show that his financial condition need not have been rendered as desperate as it subsequently apparently became. It was desirable that the cattle should be sold, and the sale to Dawson was agreeable to both Hunter, Evans & Co. and the bank, if an agreement could be made in respect to the proceeds.

In the light of these circumstances, it would require a strong case of definite misrepresentation as to facts, as distinguished from mere matters of opinion, to be made out before these agreements could be declared null and void. Complainants aver, in substance, that O'Neal represented that he owned a large number of cattle not in the O N brand, then running in the range in Van Zandt county, which were not included in the bill of sale to Hunter, Evans & Co., but were included in the bank's mortgage, and which were 'quite or very nearly sufficient in value to pay the said O'Neal's indebtedness to the said bank,' and that they were induced to enter into said agreements in reliance on said representations, which were false. But we think the evidence fairly preponderates that no such statements were made, and certainly not to the bank's knowledge, and that the testimony to the contrary is given under a misapprehension arising from O'Neal expressing his belief that he had cattle enough in all to pay both debts. And this inference is heightened by the fact that the tendency of the evidence is to establish that William Hunter, the agent of Hunter, Evans & Co., was acquainted with O'Neal's cattle, and must have known that they were principally of the O N brand. If the contention that O'Neal fraudulently disputed so large a part of the claim of Hunter, Evans & Co. against him, and then fraudulently refused to secure the disputed amount, were sustained by the evidence, neither the bank nor Dawson should be held bound by such conduct on his part without convincing proof that they participated or acquiesced in such fraud. And it would have been the duty of Hunter, Evans & Co., if they designed to attempt to set up fraud in these particulars, to have refused to go forward in consummation of the agreements on the 22d day of May at Will's Point.

When the parties met there on that day, O'Neal and Dawson having been in the mean time put to a large expense on the strength of the agreements, in gathering and caring for the cattle when and as gathered, the amount due from O'Neal to Hunter, Evans & Co. had not been determined, and O'Neal insisted that their account was erroneous to the extent of between eight and nine thousand dollars. The undisputed portion of the claim was finally set at $9,915.74. The debt due the bank was admitted to be $10,339.85, and the price to be paid for the cattle by Dawson, $19,033. The attorneys of the bank and Hunter, Evans & Co. proceeded to ascertain what the pro rata shares in the $19,033 of the bank and Hunter, Evans & Co. would be, and placed the bank's at $9,715.78 and Hunter, Evans & Co.'s at $9,317.22; these being the proportions that the undisputed debt due the bank of $10,339.85, and the undisputed debt of $9,915.74 due to Hunter, Evans & Co., were, respectively, entitled to receive. McCulloch had been selected as the party to accompany Dawson 'in driving said cattle from Texas to any point said cattle may be sold,' to 'have the legal possession of said cattle,' and to 'receive the proceeds of the sale of said cattle from any and all purchasers of said cattle to the extent and amount of said indebtedness assumed by said Dawson,' namely, inasmuch as the value of the cattle delivered to Dawson was not equal to the amount of the indebtedness, 'pro rata to the extent of the cattle received.' The undisputed debts due to Hunter, Evans & Co. and the bank, the price of the cattle, and the proportions in which the proceeds were to be distributed, having been arrived at, Dawson signed and delivered the note for $19,033; O'Neal executed an absolute bill of sale to him; the cattle were delivered; and McCulloch and Dawson started on the drive, it being understood that the cattle were to be driven to market beyond the boundaries of the state. On the same day Dawson sold cattle to the amount of $3,419, which was receipted for on the note by McCulloch, and which was divided pro rata between Hunter, Evans & Co. and the bank, as agreed upon by their representatives at the time; Hunter, Evans & Co. receiving $1,668.56. On the 25th of May, McCulloch received from further cattle sold a draft for $1,842, payable June 22d, which, being payable to Hunter, Evans & Co., was remitted to them, but McCulloch at the same time drew a draft on Hunter, Evans & Co. in favor of the bank for the bank's share, according to the proportion agreed upon, namely, $939.88; McCulloch having been instructed by the attorneys that of every $1,000 received he should send Hunter, Evans & Co. $482.52, and the bank $510.48.

In our judgment, the execution and delivery of his note by Dawson, and the delivery of the cattle to him, and O'Neal's bill of sale, constituted, under the circumstances, the consummation of the written agreement, so far as he was concerned. The cattle belonged to Dawson, subject to being retaken by Hunter, Evans & Co. and the bank, if Dawson did not sell them by the 1st of October. All that remained for Dawson to do was to sell the cattle, and pay over the proceeds to McCulloch, until his note was extinguished. It may be conceded that Hunter, Evans & Co. supposed on the 22d of May that O'Neal would be able to secure the balance due, but Dawson did not agree, as we view the transaction, that O'Neal should do so, nor was there any reason why he should, if he paid the price agreed upon for the cattle. The controversy, if any, between the other parties, would be transferred to the proceeds. What they all desired, and what they all agreed upon, was a sale of the cattle for their value, and the collection of the proceeds of such sale, and this was effected in the manner stated by the arrangement with Dawson, who, however, was under no obligation after the cattle were delivered to him, except to account for their proceeds to the amount of the note he had given, or surrender them in case of failure to realize before October 1st.

We regard the action of Hunter, Evans & Co., in commencing suit on the 31st day of May, in the district court of Montague county, against Dawson impleaded with O'Neal, and taking possession of Dawson's cattle by writ of sequestration, as unjustifiable; and hold that Dawson is entitled to recover such damages as he actually sustained, by way of recovention, in this suit. We are asked to dismiss the bill altogether, and if it had remained, as originally filed, a bill for the foreclosure of the chattel mortgage given Hunter, Evans & Co., which mortgage had been in effect disposed of by the agreements of March 20th, that course might have been proper; but the parties repleaded, and the bill as amended being in the alternative, and seeking the ascertainment of the indebtedness of O'Neal to complainants, and the payment of their share of the proceeds of the cattle, we think it should be retained and go to decree, upon being remanded, in accordance with the views herein expressed. The agreement between Hunter, Evans & Co. and the bank and O'Neal provided that, in case of any difference or trouble about the amount of the indebtedness of O'Neal to Hunter, Evans & Co. or the bank, the disputed amount, when determined by agreement, suit, arbitration, or otherwise, should be paid from the proceeds of the sale to Dawson, or from security furnished by O'Neal; and the circuit court held that, when the amount of the claim of Hunter, Evans & Co. was determined in the suit, they should participate pro rata in the fund derived from Dawson's note, and from property of O'Neal realized upon outside of that.

As it is clear that O'Neal was liable for very much the larger part of the amount disputed by him, so that the pro rata proportions arrived at at Will's Point were incorrect, and as we do not perceive that the bank is so situated as to be equitably entitled, under all the circumstances, to insist, upon the principles of estoppel or otherwise, that the proportions as then estimated must necessarily remain unchanged, we are not inclined to challenge the conclusion reached by the circuit court in this regard. It appears from the evidence that after Dawson replevied the cattle he sold them, and paid the balance due upon his note into the bank to abide the result of this suit, but at what date this deposit was made, and the exact amount of it, does not appear. The sums of $3,419 and $1,842 had already been paid upon the note, leaving a principal sum of $13,772; but the note bore 10 per cent, interest, which must be added down to the date of the payment into the bank. Upon a supplementary writ of sequestration, dated June 21, 1880, and directed to the sheriff of Van Zandt county, 247 cattle belonging to O'Neal were taken, of which he replevied 21 cows and calves, worth $110, and gave bond therefor July 17; and on the 20th of July the remainder of said cattle were delivered to Hunter, Evans & Co., being valued by the sheriff at $2,424.56, Hunter, Evans & Co. giving bond in the penal sum of $5,000. These cattle, it is testified to by O'Neal and Allen, were worth $15 a head, with the exception of a few calves, which were worth about $7 a head. Hunter, Evans & Co. sold 196 of them for $2,141.50. The circuit court found their value to be that fixed by the sheriff, namely, $2,424.56, and with that we are content. In the view which we take of the conduct of Hunter, Evans & Co., they are to be held to have received this $2,424.56 July 20, 1880, and to account also for $110 as of July 17, 1880, leaving them to pursue for their own benefit the sureties on O'Neal's bond. The fund, therefore, to be divided pro rata, consists of the amount of the Dawson note, with such interest as accrued thereon down to the date of the payment by Dawson into the bank, and of the $2,424.56, and of the $110.

As of what date shall the proportions in which this fund is to be divided between Hunter, Evans & Co. and the bank be ascertained? We believe it most equitable that this pro rata division should be determined as of the date that Dawson paid the money into the bank. In arriving at the amount actually due from O'Neal to Hunter, Evans & Co., for the purpose of distributing the fund, we think the account attached to the bill may be treated as sufficiently shown by the evidence to be correct, with the exception of some of the interest charges, which are calculated at 10 per cent., and which ought not to be compounded. The rate of interest in the state of Illinois in 1879-80 was 6 per cent., but in all written contracts it was lawful for the parties to stipulate or agree that 8 per cent. per annum should be paid, and it was provided that any person or corporation who should contract to receive a greater rate of interest or discount than 8 per cent. should forfeit the whole of said interest so contracted to be received, and be entitled only to recover the principal sum. Rev. St. Ill. 1881, c. 74, p. 615. In the state of Texas the rate of interest, when no specified rate was agreed upon, was 8 per cent., which applied to open accounts from the 1st day of January after the same were made. The parties to any written contract might agree to and stipulate for any rate of interest, not exceeding 12 per cent. per annum. Rev. St. Tex. 1879, p. 433.

We agree with appellee's counsel that the statutes of Texas do not apply, and are of opinion that Hunter, Evans & Co. are entitled to receive interest at no greater rate than that fixed by the laws of Illinois. As usury was not pleaded by O'Neal, we shall not disturb in the account the discounts of his notes and the $50 interest charged as of August 20th; but we are not convinced that O'Neal acquiesced in any of the charges of interest after that. These charges up to February 20, 1880, amounted to $875.76. The balance shown February 20, 1880, was $17,871.34, and $875.76 being deducted leaves $16,995.58. Taking this as a basis, interest may be calculated on the average monthly balances after August 20, 1879, at the rate of 6 per cent., down to the date at which Dawson paid the balance due on his note into the bank, and then added to the principal sum. This will give the amount due to Hunter, Evans & Co. as of that date, if they had received no payments thereon in the intermediate time. The bank's debt should be ascertained as of the same date, namely, the date when Dawson paid the balance on his note into the bank, by adding the interest to O'Neal's note held by it of $9,810.11, dated December 10, 1879, according to its terms. The proportion of the fund to go to each of the debts so ascertained can then be arrived at. From the pro rata amount to come to Hunter, Evans & Co. should be deducted the payments of $1,668.56, May 22d, and $1,842, June 22d, and the sum of $110, July 17th, and of $2,424.56 as of July 20th, with interest, and the balance of the pro rata amount should be decreed to be paid out of the money deposited by Dawson as of the date of such deposit, the bank retaining the remainder; and at the same time provision should be made for the production and cancellation of Dawson's note, the discharge of the sureties upon his forthcoming or replevin bond, and the payment of his claim in reconvention. While the case was pending in the circuit court, John O'Neal died, and the cause was revived as to Mary O'Neal, his administratrix. She did not appeal, and the bank and Dawson petitioned the court to be allowed an appeal as between themselves and Hunter, Evans, and Buel, the complainants, which was ordered by the court as to said two defendants, who perfected their appeal accordingly. This was proper, as, with the matters complained of by the bank and by Dawson, O'Neal's estate had no concern. The total balance of the indebtedness due from that estate, after all payments and money realized were applied, would be the same, irrespective of the proportion of such balance found due to each of the two creditors. The decree was severable in fact and in law, and the bank and Dawson were entitled to prosecute their appeal without joining their co-defendant, who did not think proper to question the judgment. And while, in order to a correct distribution of the fund, it becomes necessary to find the indebtedness of O'Neal to Hunter, Evans & Co. and to the bank, this is not a determination of the amount remaining due after the distribution is made, with intent to a decree over against O'Neal's estate therefor, as the decree originally entered, so far as relates to that, stands unappealed from by either of the parties concerned. The decree of the circuit court is reversed, with costs, and the cause remanded, with directions to proceed in conformity with this opinion.

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