Witz, Biedler & Co. v. Fite

Buchanan, J., delivered the opinion of the court. This is a writ of error to a judgment of the Circuit Court for Orange county, rendered in an action of debt brought upon two promissory notes executed by M. FI. Fite, S. L. Fite and Julia A. Levins, the defendants in error, to Witz, Biedler & Co., the plaintiffs in error. The defendants filed two special pleas in writing. The defence set up in plea Flo. 1 is that M. M. Fite and S. L. Fite, two of the three makers of the notes sued on, after such notes became due and payable, executed two writings under seal, payable to the plaintiffs, for the identical debts mentioned in the declaration, which were accepted by the plaintiffs, and that by reason of such acceptance, the notes sued on were fully satisfied, discharged and extinguished. Plea Fío.. 2 sets up substantially the same defence, except that the writings under seal were executed before the notes sued on became due. The plaintiffs objected to the filing of the pleas, but the court overruled their objections, and allowed the pleas to be filed. To this action of the court the plaintiffs excepted. This constitutes their first bill of exceptions. — 453 — After the objections of the plaintiffs to the pleas were overruled, they offered a special replication to each of the pleas, in which they averred that the writings under seal referred to in the defendants’ pleas contained, in addition to the promises to pay the sums therein specified, powers of attorney giving the plaintiffs or their attorneys authority to confess judgments therein in any court of record in the State of Pennsylvania, of which State, the two obligors in said writings obligatory were inhabitants, and that the writings obligatory were delivered, received, and accepted as collateral security alone to the notes sued on, and not in satisfaction, or as a merger of the said notes, and with the knowledge, assent, and advice of the defendants, and at the special instance and request of Julia A. Levins, the other defendant, who was a resident of the State of Yirginia, and desired the plaintiffs to take the said judgment notes for her protection, the said M. M. Fite and S. L. Fite being at that time largely indebted. The defendants demurred to the replications. The court sustained the demurrers. To this action of the court the plaintiffs excepted, and took their second bill of exceptions. The question raised by the pleadings filed and offered to be filed in the cause is whether a simple contract debt is merged into a higher security given for the same debt, to the same creditor by a portion of the same debtors, although it was agreed by the parties when given that the higher security should be taken only as a further or collateral security, and not in satisfaction of the simple contract debt. The. counsel, of the defendants insist that the question of merger cannot be controlled by the intention or agreement of the parties, but results by operation of law fi om them acts, without regard to intention. In general, a simple contract is extinguished by a specialty security for the same debt, if the remedy upon the latter is co-extensive with that which the creditor has on the former. — 454 — This question has been much discussed in England and in this country, but the weight of authority is in favor of the doctrine that if the higher security shows upon its face that it was executed'for the same debt as the simple contract, and shows further that it was not taken in satisfaction of the simple contract, but in addition or collateral to it, there is no merger. If the higher security shows upon its face that it was executed for the same debt as the simple contract and nothing more appears, the presumption is, at least of fact, that it was in satisfaction of the simple contract, and that the latter is merged into it. 2 Chitty on Contracts, page 1160-1 (11 Amer. Ed.); 15 Am. Eng. En. Law 357; 1 Smith’s Lead, cases, Pt. 1, 663 (8th Am. Ed.); 3 Minor’s’ Inst. 142 (class Ed.); Commissioner of Stamps v. Hope, 1 Appeal cases L. R. 476, 483; Butler, &c. v. Miller, 1 Denio 407; Wallace v. Fairman, 4 Watts 378, 380; 5 Lawson’s Rights & Rem., sec. 2580; Graves v. Allen,, 66 Tex. 589. But in this case the higher securities, which are copied in the replications offered, do not show that they were executed for the same debts as the notes sued on, nor do they show that they were accepted by the plaintiffs as additional or collateral securities to. the notes. Evidence other than the higher securities will therefore have to be resorted to, to show for what purpose they were executed. The defendants admit this, and insist that they can show that the higher securities were executed for the same debt as the notes sued on, but claim that, since the higher securities do not show on their face that they were taken as additional or collateral securities, the implications of law is so strong that the notes were merged into them that no proof of the intention or agreement of the parties to the contrary is admissible. "Whatever may be the rule as to the introduction of parol evidence where the higher security shows upon its face that it was given for the same debt as the simple contract, and — 455 — does not show that it was given as collateral to it, it would seem clear that if the party relying upon the merger or ex-tinguishment of the simple contract, as a defense to an action upon it, is compelled to resort to evidence other than that furnished by the higher security in order to show the purpose for which it was executed and accepted, then the party claiming that it was given as collateral security, and not in satisfaction of the simple contract, should have the right to introduce parol evidence also to sustain his contention. Authorities have been cited and found showing that where the higher security shows upon its face that it was executed and accepted as collateral security to the lower, tüen the doctrine of merger does not apply. These authorities show that where it does so appear upon the face of the higher security there is no merger, but they do not therefore prove that where it does not so appear there is a merger. If there be authorities which hold that parol evidence cannot be introduced to show that the higher security was executed and accepted as collateral or additional security, when it does not so appear upon its face, and does not show that it was executed for the same debt, the labors and researches of counsel and the court have failed to find them. On the other hand, there are authorities showing that in such a case parol evidence is admissible to show the purpose for which the higher security was executed and accepted. To this there can be no valid objection. It violates no rule of law. It enables the parties to have their controversy settled upon its merits, and not by technicalities which may shut out the truth and work injustice. It is said in 2 Chitty on Contracts, pages 1160-1 (11 Am. Ed.) that the giving of a specialty for a simple contract debt or security will not “operate as a merger, even in favor of a surety, if it appear upon the face of the specialty, or from the nature of the transaction that it was intended only as an additional or collateral security.5 ’ — 456 — In 5 Lawson’s Rights & Rem., sec. 2580, it said that “If the face of the security or other evidence shows that the higher security was taken only as a further or collateral security, there is no merger or extinguishment.” In Van Vleit v. Jones, 1 Spencer, (N. J.) 340, (43 Am. Dec. 631), the court, in discussing the question, said: “What did the parties mean by the transaction ? Did they intend that the old security should remain open, and the new one merely collateral to it'? Did they intend to extinguish the former? This intention is, of course, to be collected from the face of the instrument itself where it so appears; and, if it does not so appear, then from the next best evidence; the only difference being, that in the former case the security itself proves the exception to the rule, and also the intention of the parties, whilst in the latter the party alleging the exception must prove it. And in this no -evil can arise. There is no parol contradiction of the written instrument, but only an explanation as to the object for which it was given. A contrary doctrine would prohibit parol proof of the payment of a collateral security by the payment of the original claim, unless it appeared upon the face of the collateral that it was such. ” In the case of Gardner v. Hust, 2 Richardson (S. C.), 601, 608, the higher security did not show upon its face that it was for the same debt as the lower security. It was urged in that case that the legal presumption that there was a merger conld not be rebutted by parol evidence, but the court held that it could, and in reply to the argument that it could not, said: “That may be so where the fact that both securities were for the same debt appeared from the higher security, or by comparing the two together; but if the fact is proved by parol, there can be no objection that the terms upon which the higher security was received, are also proved by parol. Wallace v. Fairman, 4 Watts, 378, 380. — 457 — Tested by these rules, the pleas offered and allowed to be filed over the plaintiff’s objection were insufficient. All that is stated in them may be true, and still they do not set up a good defence. They ought to have aveired, not only that the writings obligatory mentioned therein were executed by the obligors for the same debts as the notes sued on, but that they were accepted by the plaintiffs in satisfaction and discharge of such notes. The Circuit Court erred in not sustaining the plaintiffs’ objection to the pleas. If the facts stated in the replications are true, there was no merger of the notes sued on, and the plaintiffs had the right to maintain their action upon them. The court therefore erred in sustaining the demurrer to the replications. For these errors the judgment of the Circuit Couit must be reversed, and a new trial awarded, to be had in accordance with the views expressed in this opinion. Reversed.