Whitehill & Son v. Dacus & Jordan

The opinion of the Court was delivered by Mr. Justice Jones. The five cases above entitled were — 274 — heard together, and involved the same question. The suits were begun in January, 1894, to recover amounts alleged to be due on certain notes, or other money demands, by the firm of Dacus & Jordan to the respective plaintiffs. The defendants answered, setting up as a defense that on the 27th day of November, 1891, the firm of Dacus & Jordan made a general assigumentfor the benefit of their creditors, and that thereafter the plaintiffs duly accepted the terms of the said assignment, and executed and delivered a release under seal, and thereby discharged the said Dacus & Jordan from all liability upon their respective claims. The answers further allege that thereafter an action was commenced in the Court of Common Pleas for Greenville County by Armstrong, Cator & Co., as plaintiffs, against Hurst, Purnell & Co., J. C. Rogers, and S. L. Stroud, as assignee of Dacus & Jordan and agent for creditors, for the purpose, among other things, of marshaling the assets of the estate of Dacus & Jordan, and determining the rights and priorities of the creditors thereof; that in said action the creditors of Dacus & Jordan were required to establish their claims; that the plaintiffs appeared therein and duly proved their claims and the execution of said release; and that it was adjudged in that action that the plaintiffs had executed a release of the said claims against Dacus & Jordan, discharging them from all liability thereon. At the following term, plaintiffs obtained an order allowing them to make a reply to the answers 'of the defendants, and, pursuant to said order, alleged, in reply, that the releases referred to -in the answers were given under the following circumstances: On the 27th day of November, 1891, defendants made an assignment for the benefit of creditors, which contained this provision: “First, to pay any debts due the public and the debts of such creditors of the said Dacus & Jordan as may, within sixty days from the date hereof, accept the terms of the said assignment and execute a release of their claims against the said Dacus & Jordan, and that the balance, after paying the said debts, be distributed — 275 — among the other creditors of the said Dacus & Jordan pro rata, without preference or priority.” That on the sixtieth day after the execution of the said assignment the plaintiffs served upon the assignee, as has been usual in such cases in this State, notice that they accepted the terms of the assignment, and offered releases as required therein, and in a few days subsequent thereto filed with the assignee the releases referred to in the answer, a copy of which is as follows: “In consideration of the amounts to be received by us, and of our having priority over non-accepting creditors in the distribution of the assets of the firm of Dacus & Jordan, we hereby release the said Dacus & Jordan from further liability on account of our claims against them.” Plaintiffs further allege, that the plaintiffs claimed that the said releases had been filed within the time fixed by the said assignment, and the condition of the releases being that they should have priority over non-releasing creditors, they were entitled to such priority. This, however, was resisted by the defendants and by creditors who had not filed releases, and, upon argument of the question, the Supreme Court held that the releases had not been filed in time, and that these plaintiffs were not entitled to priority. Plaintiffs, therefore, submit that the consideration thereof having failed, said releases are null and void, and should be returned to the plaintiffs. The reply concluded with a prayer that defendants be' required to deliver up the said releases to the plaintiffs, and that plaintiffs have judgment against the defendants according to the prayer of the complaint. Thus the actions became, in effect, equitable actions to cancel the releases and for judgment for amounts due on the original demands. The causes were heard by Judge Benet on the pleadings, • all the allegations of which were mutually admitted, except it was agreed that the defendants were not parties to the action of Armstrong v. Hurst, 39 S. C., 498, referred to in the answers, but that the assignee of Dacus & Jordan and the agent for creditors were par — 276 — ties thereto. Upon these facts Judge Benet-adjudged that plaintiffs were entitled to enter judgment against the defendants for the sums claimed, less the admitted credits; and further ordered, that defendants deliver up for cancellation the said releases, alleged to have been filed by plaintiffs’ counsel with the assignee of defendants. From the judgment entered the defendants appeal. The only question presented is, whether the said releases are binding and valid to prevent recovery on the original indebtedness. The appellants contend that the plaintiffs seek to avoid the effect of these releases, not on the ground that there was any mistake of law or of fact, or that they were induced to make them through any fraud of the defendants, but simply upon the ground of failure to obtain what they expected. -But we do not think this is a correct view of plaintiffs’ case. The judgment of the Circuit Court may be vindicated from either of two points of view. First, the releases in question were not absolute and unconditional discharges of the indebtedness due by defendants. Correctly construed, according to the manifest intention of the parties, the debts were released upon condition that the releasing creditors have priority over non-accepting creditors in the distribution of the assets of Dacus & Jordan. It is true, the paper reads, “in consideration * * * of our having priority over non-accepting creditors, * * * we hereby release, &c.” But we construe this to mean, “in consideration of our having, or being allowed to have, the right of priority, &c.;”and it seems clear the parties understood the release to be- conditioned on the right of priority. In the third paragraph of the paper called the reply of plaintiffs, it is distinctly alleged that the “plaintiffs claimed that the said release had been filed within the time fixed by the said assignment, and the condition of the release being that they should have priority over non-releasing creditors, they were entitled to priority.” This shows plaintiffs’ view of the release as one on condition, and the defendants admit the allegations in the reply to be true, and in so far as the — 277 — statement italicized above may be regarded as a statement of fact, it is admitted as true. It having been decided in Armstrong v. Hurst, supra, that the releases not having been filed in time, the plaintiffs did not come within the class of creditors who had accepted and released within the prescribed time, hence they had no right of priority over non-accepting- creditors, it follows that the condition on which the' releases were made having failed, the releases must be held inoperative. In the second place, if the above view is untenable, the judgment below should be affirmed, on the ground that the releases were executed and accepted under a mutual mistake in law. Whatever may be the rule elsewhere, it is settled in this State that a court of equity has jurisdiction to set aside a contract on the ground of mistake in law. Lowndes v. Chisolm, 2 McC. Eq., *455; Lawrence v. Beaubien, 2 Bail., 623; Brock v. O'Dell, 44 S. C., 34. Assuming that the parties did not intend the releases as conditioned on the right of priority over non-releasing creditors, then, granting both to have acted in good faith, it is manifest that they acted under a mutual misconception of their rights, and of the effect of their agreement. It cannot be said that Dacus & Jordan were passive in this matter of the release. The release was a contract between them and the plaintiffs, which was delivered to the assignee as the designated agent of Dacus & Jordan in this matter. In the absence of anything to the contrary, Dacus & Jordan must be held to have accepted and agreed to the release according to its terms when it was delivered to their agent. Plaintiffs did not intend to release in any other way than as a creditor releasing within the time prescribed, and defendants, if they were not desirous of undue advantage, did not accept the release in any other way than as a release entitling the creditor to priority in the distribution of the firm assets. It may be said that the mutual mistake was partly one of fact, both supposing that the releases were filed within — 278 — the time prescribed in the assignment. This was plaintiff’s contention in the case of Armstrong v. Hurst, supra—they contending that the notice of acceptance and offer to release being made within the sixty days, that the filing of the former releases ten days after by the creditors'themselves, had the effect of ratifying and confirming the previous action of their attorneys, so as to give such action effect from the day when it was taken. Defendants, doubtless, thought the acceptance and release were filed in time, for they allege in the second paragraph of their answer that “the plaintiffs duly accepted the terms of the said assignment, and executed and. delivered a release, &c.” Under the ruling of this Court in Armstrong v. Hurst, the plaintiffs received a small dividend from the assigned estate, as non-releasing creditors within the time prescribed, and for this payment due allowance was made in the Circuit decree in this case. They did not receive this dividend by virtue of the releases, but would have been entitled to it without any attempt to release. If plaintiffs had no right of priority under the releases, there was a total failure of consideration, contrary to the intent of the parties. It is as if the defendants had paid the plaintiffs’ debt in counterfeit money, both parties believing the money to be good. The discharge of the debt under such circumstances is a nullity. It should be borne in mind that this is not a case wherein a releasing creditor is seeking to set aside his contract of release on the ground that he received less than he expected. Had the releasing creditors in this case received what they bargained for, the right of priority over non-releasing creditors, they would be held to their releases, fairly made, whether they received little or nothing as a. result of that priority. But this is a case of mutual mistake, and such a mistake as a court of equity ought to correct. The mistake of the parties in this case can be corrected without injury to the defendants. The assigned estate has been distributed according to the terms of their assignment, and they have given nothing as a consideration for the discharge — 279 — of these honest debts. They are restored completely to their status at the time of the attempted releases. The judgment of the Circuit Court is affirmed.