Pierce, Butler & Co. v. Jones

The opinion of the Court was delivered by Moses, C. J. This was an action on two several promissory notes drawn by the respondents in favor of the appellants — one for $4,000, dated 17th March, 1873, payable 1st March following; the other for $5,820.03, dated 16th March, 1874, payable fifteen days after date. The last was the aggregate of open accounts and small drafts due before 14th February, 1874, and is, alike with the first, subject to the operation of the alleged agreement to be hereafter referred to. • On the 14th February, 1874, the said J. J. Pierce, Butler & Co., with other creditors of the said Thomas Jones & Son, executed a \yritten agreement in the following words: “We, the creditors of T. Jones & Son, hereby agree to compromise with the said T. Jones & Son for twenty-five cents on the dollar on the principal and interest of the several amounts due us, and will give them a clear receipt of all indebtedness to us and our assigns, provided that all persons who may hold any claim, account, note or other evidence of indebtedness shall assent to this settlement and arrangement.” It appeared that each of the said creditors had received the sum for which, by the agreement, they had stipulated “to give a clear receipt of all indebtedness.” The report of the Referee states that all the other creditors had acted in good faith in regard to its stipulation, and this must be held to include all the creditors of the respondents, for the agreement was on the condition that all persons who might hold any claim, &c., should assent to it; and if any other creditor had refused to enter into the compromise it was to the interest of the appellants to show it, for in that event the non-compliance with the proviso on which they were to be bound might have operated to discharge them from its effect. The agreement was set up by the respondents as a discharge of all the balance due upon the notes held by the appellants, by their acceptance of the payment of the one-fourth due thereon. The Circuit Judge sustained the defense on the ground submitted and dislnissetl th.e complaint. The appeal seeks to reverse his judgment, and charges error of law therein. It is contended, on behalf of the appellants, that a promissory note, at maturity, is not satisfied by the acceptance of a part of the [279] amount due in discharge of the remaining balance, and that'this principle must apply to exclude the defense relied on by the parties who now submit the said agreement as a bar to the recovery of the remaining portion of the notes. The English and American cases, (and in the last may be included those in the Courts of this State,) it may be said, generally concur in the doctrine announced in Pinnell’s case, (5 Rep., 60, p. 117,) “that payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction of the whole, because it appears to the Judges that by no possibility a .lesser sum can be a satisfaction to the plaintiff for a greater sum.” ■ While many eminent Judges have not hesitated to notice and descant on the seeming inconsistency of the rule which permits the acceptance of anything, — “ a horse, a hawk, a robe,” — no matter how inconsiderable the worth, to operate as a discharge of a debt largely exceeding in amount the value of the article so received, and still withholds a like effect to a payment in money unless for the whole sum due, they have felt bound to conform to the decisions which have confirmed it, extending as they do through'a long succession of years. An agreement to accept a lesser sum in discharge of a greater is not allowed its proposed purpose for the want of a sufficient consideration to support it. It is therefore permitted to have full effect whenever such payment is made and accepted under such circumstances and at'such time as a good, valid consideration for the promise and assumption of the creditor. While, therefore, the principle contended for is fully sustained by the authorities cited, and precludes the agreement from operating in a technical sense as accord and satisfaction, or a release, it fails in its application to the case here, because there was a sufficient consideration to sustain it as a valid and binding contract. In Fitch vs. Sutton, (5 East., 232,) Lord Ellenborough, giving full force to the general rule to carve out an exception to it, said: “There must be some consideration for the relinquishment of the residue, — something collateral to show a possibility of benefit to the party relinquishing his further claim, — otherwise the- agreement is nudum pactum.” Mr. Chitty in his work on Promissory - Notes, at p. 606, thus states the principle applicable to the case before us and by which it must be governed: “Although in general a creditor who separately agrees to take less than his entire demand is not legally [280] bound by such agreement for want of. adequate consideration, yet where several creditors, on the faith of each others stipulation, enter into an arrangement of that nature, whether by deed or unstamped memorandum, each is legally bound by it, and he cannot either privately receive or sue his debtor for a larger dividend than the rest.” So in Good vs. Cheeseman, 2 B. & Adol., 328. There “A debtor unable to meet' the demand of his creditors, they agree with him in writing to accept payment by his covenanting to pay two-thirds of his annual income to a trustee and give a warrant of attorney as collateral security. The creditors never nominated a trustee, though the debtor appeared willing to perform his part of the engagement. One of the creditors brought an action against the debtor for his demand.” It was held “that the agreement, though not properly an accord and satisfaction, was still a good defense on the general issue, as it constituted a valid new contract between the creditors and debtors, capable of being immediately enforced, and the consideration for which to each creditor was the forbearance of the rest, and as there appeared no failure on the part of the debtor.” Lord Tenterden, C. J., said: “Then is not this a case where each creditor is bound in consequence of the agreement of the rest? It appears to me that it is so, both on principle and on the authority of the cases in which it has been held that a creditor shall not bring an action where others have been induced to give him a composition with the debtor, each party giving the rest reason to believe that in consequence of such engagement his demand will not be enforced. This is in fact a new agreement substituted for the original contract with the debtor, the consideration to each creditor being the engagement of the others not to press their individual claims.” On the same principle it had been held in Cockshatt vs. Bennett, (2 T. R., 762,) that where creditors of an.insolvent entered into a composition for their respective demands and one of them before he executed it obtains from the debtor a note for the residue of his claim, it is void in law as a fraud on the rest of the creditors. Lord Kenyon, C. J., said: “ These plaintiffs, in fraud of their engagement, entered into a contract with the respondents which prevented their being put in that situation which was the inducement to the other creditors to sign the deed and to relinquish a part of their demands. The contract in the present case affected all the other creditors by rendering abortive all that they had intended to do for the bankrupt in compounding for their debts.” [281] In Boothby et al. vs. Sowden, (3 Camp., 174,) where all the creditors of one in embarrassed circumstances signed an agreement to give time for the payment of their respective demands by installments, and to take his notes for the amount, Lord Ellenborough held that there was- sufficient consideration for each of the creditors entering into the agreement that it was subscribed by all the others. In Steinman et al. vs. Magnus, (11 East., 394,) the same learned Justice had before said : “Where other creditors have been lured in by the agreement to relinquish their further demands upon the supposition that the party will be discharged from the remainder of his debts, that makes all the difference in the case, and the agreement will be binding.” In Fitch vs. Sutton: “Our opinion proceeded upon the precise terms of the case as stated to us in the report of the evidence. If the evidence had gone a little further it would have altered our decision.” The appellants in the case before us secured through the agreement an advantage of which they possibly may have been deprived by the application by the debtors of their assets among their creditors in different proportions, giving to them a less share than to others, or, in fact, they might have made a preference to one creditor to the exclusion of all the rest, provided it was not undue arid fraudulent. The appellants secured by the agreement at least twenty-five per cent, of their debt, when, if they had not entered into it, they stood the chance of losing the whole. There is another view to be taken- of the defense which must bar the recovery. The agreement, we must assume, by the proviso which it contains, was assented to by all the creditors of the firm with whom it was made. Each, in consideration of the receipt of twenty-five per cent, of his demand, consented to accept it as a compromise, by which he released all the balance of his debt. It was founded on the principle of equality-all were to share alike. If the appellants recovered in their action itwould.be a fraud on the other creditors who were induced to accept the proportion fixed by the agreement on the express stipulation that it was to be entered into by all the creditors, and binding so far as to prevent either from obtaining from the assets of the debtors more than the prescribed proportion. • Each creditor for his act “had the undertaking of the rest as a consideration for his own undertaking.” [282] The principle which governed the decision in Aiken vs. Rice, (Dud., 52,) applies in full force here. The motion is dismissed. Wright, A. J., and Willard, A. J., concurred.