Williams v. Schreiber

Ingalls, J.: This action was brought to recover upon a promissory note executed under the following circumstances: Charles Neidig and Christian A. Neidig, constituting the firm of C. & C. A. Neidig, applied to their creditors to compromise the indebtedness of such firm to such creditors. The latter agreed to accept endorsed notes for 30 per cent, of their respective claims, in full settlement thereof, and agreed to execute a full and sufficient release and discharge of all debts owing to them respectively by the said firm; the creditors, including the plaintiff', executed such compromise agreement, and received the notes of the firm endorsed by one Henry Neidig. By a private arrangement, and as a consideration for joining in such compromise agreement, the plaintiff exacted and obtained from such firm notes executed by the defendant, Jacob G. Schreiber, for the benefit of said firm, payable to the order of said firm to the amount of $1,500; in addition to the 30 per cent, mentioned in the compromise agreement. This arrangement was not communicated to the other creditors of the Neidigs. The note in suit was one of the series making up the $1,500. This transaction was clearly in fraud of the rights of the other creditors, and in violation of the terms and spirit of the agreement. It may be faii-ly inferred that the other creditors would have declined a compromise if they had been aware of the private arrangement in regard to the $1,500. This fraud upon the other creditors rendered the note, upon which this action is brought, void. (Lawrence v. Clark, 36 N. Y., 128; Harloe v. Foster, 53 N. Y., 385; Russell v. Rogers, 10 Wend., 473; Breck v. Cole, 4 Sandf. [S. C. R.], 79.) The following clause appears in the compromise agreement: [41] “But it is expressly understood that nothing herein contained shall be hold or construed as releasing or discharging the indorser upon any paper hold by either of us.” The intention of the parties in inserting this provision is not quite apparent. It can hardly be inferred that the creditors intended to secure from the Neicligs thirty per cent, of their claims, and then collect the residue of the indorsers. Such an arrangement would have been inconsistent -with the terms of the compromise agreement, and would defeat the purpose intended, because the indorsers would have a right of action over against the Neicligs for any money they were compelled to pay, which would deprive the Neidigs of all benefit of the compromise. We therefore conclude that the parties to the agreement merely intended to retain a claim upon the indorsers as additional security, in case from any cause the compromise should fail. This interpretation seems reasonable, and consistent with the other portions of the agreement, and harmonizes the entire arrangement. If we are correct in the view thus taken of the case, it becomes unnecessary to discuss the other questions which were pressed upon the argument. The judgment should be affirmed with costs. Davis, P. J., concurred. Judgment affirmed with costs.