Ives v. Scranton Textile Co.

Opinion by Henderson, J., The defendant company having become financially embarrassed and a receiver of its property having been appointed by the United States district court a committee representing a majority of the stockholders and a majority of the holders of the company’s securities not covered by mortgages was appointed to submit a proposition for the composition of the defendant’s liabilities. Pursuant to this appointment the committee made a proposition to all of the creditors except mortgagees that payment be made in full to those having claims amounting to less than $100 and that all having claims in excess of that amount agree to accept twenty-five per cent in cash and seventy-five per cent of the capital stock of the company, the company having the right to redeem such [85] issue of its capital stock at par at any time within five years from date of issue. The proposition contained the stipulation that when the creditors signified their acceptance thereof the parties in interest would at once pay the cash payment of twenty-five per cent and as rapidly as possible transfer the shares of stock. This proposition was presented to the plaintiffs and on April 28,1911, was accepted in writing in these words: “We will take the twenty-five per cent cash and balance in stock, if in two years Mr. Jones or Mr. Johnson will take it off our hands.” On May 15, the committee replied to this proposal as follows: “We accept your proposition as stated in letter of April 28, 1911.” All the creditors having accepted the proposition the receiver by direction of the court turned over the assets of the company to its officers to the end that the compromise and composition might be carried out. On June 19, 1911, a check of the defendant was tendered to the plaintiffs and a certificate for the shares of stock to which they were entitled under the agreement. This tender was refused by the plaintiffs and suit was brought for the amount of their claim, the objection being that Johnson and Jones had not entered into an agreement in writing to take the stock off the plaintiffs’ hands in two years. Exceptions were filed to the affidavit of defense and at the hearing on the rule the court directed that if Mr. Johnson and Mr. Jones file within thirty days a stipulation in writing to take the stock from the plaintiffs in two years the rule for judgment should be discharged. This was done and a new tender of the twenty-five per cent in cash and the stock was made to the plaintiffs. It is a principle well settled in this state that a composition agreement between a debtor and his creditors is valid and binds all parties thereto. The undertaking of the other compounding creditors to release the debtor from a part of their claims is a consideration which supports the agreement of each creditor: Crawford v. Krueger, 201 Pa. 348. After a creditor has thus agreed to relinquish part of his claim and induced others to become [86] parties to a composition, it would be a fraud on them to permit him to ignore the agreement and collect the full amount of his claim: Hearn v. Kiehl, 38 Pa. 147; Laird v. Campbell, 92 Pa. 470. This new agreement, therefore, took the place of the original liability of the defendant to the plaintiffs. The property of the company was in the hands of the receiver and the real estate was about to be sold by the sheriff. The directors informed the plaintiffs and other creditors of the state of their affairs from which it appeared that there would be a very small percentage for distribution. Some of the stockholders having confidence in the future business of the company were ready to contribute to aid in carrying out the composition settlement. The acceptance by the plaintiffs of the proposition constituted the contract. This acceptance contained a condition, however, that Mr. Johnson or Mr. Jones should agree to take the stock of the company off the plaintiffs’ hands in two years. This Mr. Johnson did in voting as a director to accept the plaintiffs’ condition. There was nothing in the modified acceptance of the proposition by the plaintiffs which provided that this agreement to take the stock off their hands should be in writing, but when that demand was made by the plaintiffs Mr. Johnson and Mr. Jones complied. There was a full execution of the agreement of composition. It was binding therefore on the plaintiffs. The opinion of the learned judge who heard the case is well supported by authority. The judgment is affirmed.