Ferguson-McKinney Dry Goods Co. v. Beuckman

REYNOLDS, P. J. This action, commenced by plaintiff below, now respondent as well as plaintiff in error, counts on a promissory note dated at St. Louis, February 1, 1910, for $2991.18, the note signed by appellant and defendant in error, the amount payable after date on demand with interest to be compounded annually. Judgment is asked for the amount of the note and interest. The answer, admitting the execution and delivery of the note, after denying any indebtedness thereon, by way of defense states that in the years 1907 and 1908 and prior thereto, defendant was engaged in the mercantile business as a retail dealer in general merchandise in Ozark, Arkansas;. that in those years he became heavily involved financially and failed in business, and .was indebted to many different creditors in various amounts aggregating in all several thousand dollars; that plaintiff was one of these creditors and that defendant at that time owed plaintiff $7623.34;. — 50 — that when defendant became so involved financially, at the suggestion of plaintiff, a compromise or composition was entered into by defendant with his creditors, whereby the latter agreed to accept in settlement and payment of their respective claims the sum of fifty cents on the dollar thereon; that plaintiff urged the execution of this compromise agreement upon, and caused it to be presented to defendant’s creditors for their approval . and execution, and that it was signed and executed by plaintiff and the defendant’s creditors upon the request of plaintiff, and the compromise or composition carried out and the sum of fifty cents on the dollar of the respective claims paid by defendant to his creditors under this agreement; that at the time of the execution of the composition agreement by the defendant’s creditors and at the time it was' carried out and fifty cents on the dollar paid to the creditors, plaintiff urged and insisted secretly that defendant pay plaintiff the full amount of its claim but concealed such demand from the other creditors of defendant and pretended to the other creditors that it was to receive payment of its claim at the rate of fifty cents on the dollar, the same as was to be received by defendant’s other creditors; that by reason of and in pursuance of these demands of plaintiff that defendant pay it the full amount of its claim, defendant did pay to plaintiff on its claim fifty cents on the dollar as provided by the composition agreement,, and in addition thereto the sum of $1181.16 and executed the note herein sued upon for the amount of $2991.18 for the balance of plaintiff’s claim, with interest thereon, and delivered it to plaintiff; that this note now sued upon was given to plaintiff by reason of these secret and fraudulent demands made by plaintiff and in fraud of the other creditors and of defendant and is null and void. Wherefore defendant demands that he be dismissed with his costs. By way of a counterclaim, defendant, repeating the averments in his answer, alleges that by reason of plaintiff’s secret and fraudulent demands that he do so,' he had paid plaintiff the sum of $1181.16 in — 51 — cash over and above the fifty cents on the dollar, as provided by the composition agreement, and had executed the note in suit for the balance of plaintiff’s claim by reason of plaintiff’s secret, unreasonable and fraudulent demand, as before set out, and he avers that by reason of the premises he (defendant) is entitled to judgment against plaintiff. for the sum of $1181.16, so paid to plaintiff, for which, with costs, he prays judgment. The plaintiff replied to 'the. answer by a general denial and after a general denial of the averments of the counterclaim it is set up that on September 21, 1909, defendant filed a petition in bankruptcy and received his discharge in bankruptcy on January 18, 1910, after the alleged transactions in the defendant’s counterclaim; that the amount alleged in defendant’s counterclaim to have been paid by him to plaintiff was not scheduled among his assets or filed by the defendant in the bankruptcy proceedings, and that any right, title or interest that defendant may have had in and to the amount alleged in the counterclaim has been divested by the bankruptcy proceedings, and that defendant is thereby estopped to • set np any claim thereto. What is called a replication was filed to this answer to the counterclaim, denying the averments of it. The cause was submitted to the court, a jury being waived, and after being taken under advisement the court found for defendant on plaintiff’s cause of action and for plaintiff on defendant’s counterclaim, rendering judgment accordingly. On the same day upon which the court rendered its finding and judgment, the court, at the request of counsel for defendant, filed instructions or declarations of law, two of which were given and one refused. The first of those given was to the effect that if the note sued on was given under the circumstances set out in the answer, plaintiff could not recover. The one marked third asked and given was to the effect that if the court, sitting as a jury, found from the evidence that a few of the credi — 52 — tors of the defendant did not sign the agreement referred to, to accept fifty cents on the dollar for their respective claims, yet if the court further believed from the evidence that plaintiff waived the signatures of such creditors by asking that the terms of the agreement be carried out without other signatures, plaintiff cannot now be heard to complain of the failure of such creditors to sign the contract. We will notice the second declaration asked and which ■ was refused wherf we hereafter treat of the counterclaim, as it was. pertinent to that alone. Following the decision of the court, plaintiff moved for a hew trial on the finding of the court against it on its cause of action, which motion was overruled, and plaintiff, excepting, sued out its writ of error. The defendant also filed a motion for a new trial on'the' finding against him on his counterclaim, which motion was overruled, defendant excepting, thereupon appealing to our court. Counsel for the respective parties raise many points and have favored us with very elaborate arguments, these arguments accompanied by the citation of numerous authorities. In our view of the case it lies within a very narrow compass. Considering .the position of plaintiff as plaintiff in error and covering the action of the court in finding against it and for the defendant on the note sued on, we think that the action of the trial court in so finding was sustained by the facts and by authority. In 5 Ruling Case Law, p. 874, section 7, it is stated: “The weight of authority is clear that a creditor not guilty of fraud may recover on the original claim and ignore a general composition where another creditor has secretly obtained an undue advantage and a fraudulent preference in the composition.” We have no such situation here. After stating the rule as above, that authority proceeds: “But a creditor guilty of a fraud on the other creditors in obtaining a secret preference cannot recover on a note or other contract for the balance of — 53 — Ms original claim remaining after receiving payment under the composition.” The note at page 38, 27 L. R. A. (1895), to Hanover National Bank v. Blake, 143 N. Y. 404, is cited for this, and a reference to that shows abundant authority in support of the text. To the same effect see 8 Cyc., commencing with paragraph B, page 468, as also 12- Corpus Juris, pp. 289 and 390, section 89, subdivision e. There was ample evidence in this case warranting the trial court in arriving at its conclusion that this plaintiff had been guilty of fraud on the other creditors in exacting a note from the defendant for the balance unpaid on its claim, the plaintiff having been an active agent in procuring the signatures of other' creditors to the composition and in obtaining releases at the rate of fifty cents on the dollar from a few creditors outside of those signing. In considering the matter of the 'counter claim, we will go into the facts somewhat more at length and refer to what we there say as to them. It is sufficient to say here that there is evidence to the effect that plaintiff executed the note for which this is a substitute as a condition of signing the so-called composition and concealed that from the other signing creditors, whose signatures it procured. But it is said that the note sued on is not the note which was- given- at the time the composition agreement was entered into but was .a new note given for the difference unpaid on the old account, after the composition agreement had been fully executed and after defendant had been discharged in bankruptcy, it being claimed that a moral obligation to pay the debt,, although discharged from its payment, was a good and sufficient consideration. It is true that if a party who has gone into a composition with his creditors, or who has been discharged in bankruptcy, afterwards voluntarily promises his debtor to pay the unpaid part of the' original debt, that the moral obligation is a good and valuable consideration for the note or "for a promise to pay. Without going out — 54 — side of our State for authorities, it is sufficient to refer to the decisions of our court in Fleming v. Lullman, 11 Mo. App. 104; Reith v. Lullman, Ibid. 254; Farmers & Merchants Bank of Vandalia v. Richards, 119 Mo. App. 18, 95 S. W. 290. The two former cases are cited in the latter, in which it is held that the discharge of a debtor in bankruptcy releases the debtor from his legal obligation to pay, but the moral obligation to pay remains and furnishes a sufficient consideration in law for a new promise to pay, and the debtor is bound by a new promise to pay, made unconditionally, without other consideration. In all those cases it appeared that the new promise had been made after the discharge in bankruptcy and without any prior or secret agreement to pay. But in the case at bar, while the note sued on purports to be a new contract, in point'of fact it is but a substitute for the original note; which was given for the portion of plaintiff’s claim against defendant remaining unpaid when plaintiff signed the composition agreement. That note originally given,- undoubtedly, as the authorities to which we have referred above show, was void. That first note was held by plaintiff in this case until defendant instituted proceedings to have himself adjudicated a bankrupt and either at his own suggestion, or at the suggestion of plaintiff, and on this there is a difference in the testimony, that note was cancelled and destroyed. After the discharge of defendant in bankruptcy he gave this present note. The . consideration for this new note could not be, was not other than for the first, and if the first was void for the reasons we have stated, so was the one now in suit. It is true that defendant, when he gave this present note was not under any coercion; in point of fact, he was not in St. Louis, where plaintiff resided and had its place of business, at the time he signed it, but was in Arkansas and in the employ of another concern. This note in suit was sent to him by mail; he retained it for about two month's and then returned it to plaintiff, signed by himself. • — 55 — But after all, this was a mere substitute for the first note, and left the present note dependant for any consideration whatever, morally or • otherwise, upon the first note given and which had been surrendered or destroyed. Under these circumstances we conclude that the note now in suit rests on no obligation of any kind, moral or otherwise, and is not enforceable in the hands of plaintiff. Learned counsel for plaintiff, however, claims that as many of the creditors of defendant, who were such at the time this composition was entered into, had not signed it, it was of no effect and never became of legal force, and so complain of the declaration numbered third. The answer to this is,- that this plaintiff is in no position to make any such claim here. It was the procuring cause of the signatures to the proposed composition by all the creditors who signed it and who accepted fifty cents on the dollar on their claims, or who, without signing, accepted the composition; and plaintiff distinctly represented to all these that practically all the defendant’s creditors, whose signatures were important, had signed or agreed to the composition. Learned counsel for plaintiff argues that other creditors who were paid not having in fact signed the composition, their acceptance of the fifty cents on the dollar on their claims, is of no effect'. That may be, but that did not make it void, but voidable only, as see Crowder v. Allen-West Commission Co., 129 C. C. A. Reps. 521, 1. c. 525. Undoubtedly, the learned trial judge found that it does not lie in the mouth of plaintiff to urge either of these defenses, plaintiff having been active in procuring releases from a large number of the creditors. So it is said in 12 Corpus Juris, p. 292, sec. 94, citing many authorities to that effect. Even conceding that a number of creditors, who were holding among them large claims, did not sign, still plaintiff held out to those signing that the composition had been perfected, and on this, induced them to enter with it and accept the fifty per cent agreed upon. We hold that the action of the trial court, under the evidence in the case and under the law applicable — 56 — to it, was correct in holding that the plaintiff conld not recover on its cause of action. That brings us to the consideration of the claim of appellant and defendant in error to the action of the trial court in finding against him on his counterclaim. The facts peculiarly applicable to that transaction are these: Along in the early part of March, 1908, it appears that defendant, who was engaged ■ in the mercantile business at Ozark, Arkansas, became embarrassed financially and that the Ferguson-McKinney Dry G-oods Company, learning of that, its secretary Mr. Bogy, requested defendant to meet him at Fort Smith, Arkansas.- Defendant at that time, admittedly, was indebted to plaintiff on general, account for merchandise -sold and delivered, in the sum of $7623.34. Accordingly Mr. Bogy went to Fort Smith, arriving there on March 22, 1908, that being Sunday. He there met defendant, who was accompanied by a Mr. Turner, who at that time -was the cashier of the Peoples Bank of Ozark, Arkansas. Apparently for the first time Mr. Bogy, representing plaintiff, was then made aware of the bank’s claim, which amounted in round numbers to something over $20,000; After some discussion between the parties, that is Turner,- Beuckman and Bogy, a .lawyer of Fort Smith, referred to in the testimony as Judge Reed, was called in for consultation over the situation. Whether Bogy or Beuckman or Turner called, this gentleman in, does not clearly appear. At any rate, as the result of the conference between all four, it was arranged that all the effects of defendant should be sold out and the proceeds turned over to the.Peoples Bank, out of which the bank was to pay such creditors as would accept the composition and retain whatever balance might remain in payment of the' amount due it, as far as it would go. How much the property sold, for brought is not very clear. The cashier of the bank said it brought about $17,740.4%. It appears that on September 21, 1909, Beuckman instituted proceedings in bankruptcy, which resulted in his discharge January — 57 — 18, 1910. In Schedule “B,” filed by Beuckman with his petition, and to which schedule he made oath' on September- 21, 1909, under the heading, “Property Heretofore Conveyed for Benefit of Creditors,” it is .set out that, “a stock of merchandise amounting to about $24,800,” (so it appears in the schedule) “was on or about the 26th of March, 1908, turned over to Peoples Bank, Ozark, Ark., for benefit of my creditors; also horse and buggy, wagon, two mules, stock in Ozark Light Company, and about $5000 R. R. ties; 12 shares stock in Telephone Company of Ozark. All books and papers turned over to said bank, $21,200.” So that whether the claim of the Peoples Bank was about. $20,000, or about $17,000, is not clear. The oral testimony in the case does not specifically give the date at which this sale was made. It does appear, however, from the testimony that this sale was arranged for on this 22nd of March, 1908, in the interview between Beuckman, Turner and Bogy, and apparently under the advice of Judge Reed. It furthermore "appears by the oral testimony of defendant and of Mr. Turner, that in point of fact the sale of the merchandise, etc., was made, not to the bank, but to a firm called Conatser, Hill Company, composed of M. B. Conatser and a Mr. Hill and a Mr. Tolleson, Conatser at that time being the president of the Peoples Bank, and the proceeds of the sale turned over to the Peoples Bank. According to the testimony of Mr. Bogy and of Mr. Turner, it was then known that not only did Beuckman have St. Louis creditors, who were listed, but also creditors in other places, and that he owed the Peoples Bank a large sum. At that meeting at Fort' Smith on March 22, 1908, according to the testimony of defendant, Mr. Bogy had first insisted that his firm should be paid, after first trying to have the whole .amount paid, seventy cents on the dollar. When Bogy found he could not get that he finally wanted 60 per cent, and when he could not get that, “Finally,” (as the defendant testified) “we agreed at fifty-five cents. I objected to that but I couldn’t do anything better.” Mr. Bogy insisted on this extra five — 58 — cents for Ms firm "because, according to Beuckman, Bogy said, “He had taken a lot of trouble and so forth and so on and he thought he was entitled to" more than anybody else.” According to Mr. Bogy, and in this he is not contradicted by anybody, he (Bogy) induced the cashier of the Peoples Bank to agree to pay the creditors a certain percentage on the dollar and take over the assets. The cashier of the bank testified that he, for his bank, finally consented to advance money enough to pay the creditors fifty cents on the dollar and to give the Ferguson-McKinney Dry Goods Company 5 per cent extra to pay Bogy’s expenses and the attorney’s fee, provided he (Bogy) could get the creditors to accept this settlement, which Bogy undertook to do. That is also Mr. Bogy’s testimony as to the transaction and it is not denied by any other witness specifically. Mr. Bogy testified that he paid Judge Reed $200 for his services as attorney in arranging the matter, which was included in this extra 5 per cent. With this arrangement made between the parties Mr. Bogy returned to St. Louis, apparently the evening of that same day, and the next day, March 23rd, at St. Louis, drew up what is relied upon as the composition agreement in this case, by which those signing agreed to accept fifty cents on the dollar, of their respective accounts, to be paid in cash by the Peoples Bank of Ozark as payment' in full of all demands against said George O. Beuckman, it being stipulated that the agreement was not to be binding unless all the creditors agreed to accept. Creditors, whose account aggregated about $10,-095.04, the plaintiff signing through Bogy for $7623.34, signed this and all were paid 50 per cent on their accounts, the payments made through drafts on Beuckman, through the Peoples Bank of Ozark, or through drafts on the bank, the Ferguson-McKinney Dry Goods Company, however, receiving not only 50 per cent on the $7623.34 of its account but also an additional 5 per cent, amounting to $381.16, a total of $4192.83: Plaintiff drew a sight draft on defendant, of date March 25, 1908, payable to the order of the Peoples — 59 — Bank for collection. This draft is not marked as having heen paid, but under the same date it appears that plaintiff made out its account against Beuckman, showing $7623.34 as due, and attached to the account was this: “Received of Peoples Bank, Ozark, Ark., four thousand one hundred ninety-two & 83-100 ($4192.83) as payment in full of above account. ’ ’ According to the testimony of defendant, his indebtedness to the Peoples Bank at that time was about $20,000, in round numbers, and he testified that using the proceeds of the sale of his stock for the settlement with creditors and the Peoples Bank, that bank received about fifty cents on the dollar on its claim. That statement is hardly consistent with other testimony in the case, particularly in connection with that furnished by the schedule filed by defendant in his bankruptcy proceeding, and the testimony of the cashier of the bank. It would seem from an examination of this testimony that' the signing creditors, including plaintiff, if paid at the rate of fifty cents on the dollar, should have received something over $5000, which would leave about $12,700 for the bank to apply on its claim of something over $20,000. Even with this claimed excess payment of 5 per cent., amounting to $381.16, and which included the $200 paid the attorney, and leaving $181.16 to apply to the travel-ling and other expenses of Mr. Bogy, it would seem that the Peoples Bank realized considerably more than 50 cents on the dollar of its own claim. However that may have been, it is very clear that the money which paid thé extra five per cent was the money of the Peoples Bank and not the money of the defendant. By turning over the proceeds of the sale of his stock to the bank in the manner in which that was done, the defendant lost all interest in it, beyond the right to have the bank account to him for its proper distribution. It follows therefore that in so far as this $381.-16, which forms part of the $1181.16 demanded in the counterclaim, defendant certainly cannot recover. - The remainder of that counterclaim is based on the payment of $828.45 made on the account on April 14, 1908. — 60 — Reverting back to tbe transaction between tbe parties wbicb took place at Fort Smith on March 22, 1908, we have seen that according to the testimony of defendant and after it had been agreed to give plaintiff fifty-five cents on the dollar, as before stated, Mr. Bogy insisted that defendant should give his note for whatever balance there might be over and above what he then paid. Without interest that would require a note in the sum of about $3431. Bogy asked him, according to defendant, if he could not pay all of plaintiff’s account in full and give them what he could when he sold his house. Defendant apparently assented to this, but it does not appear that any note was then given. Defendant apparently then returned to' his home and it appearing that his wife, Mrs. Ebba L. Beuckman, who was the owner of the house in which they lived, also situated in Arkansas, sold this house — for how much does not appear. It does appear, however, that as either in full or as part of this transaction the purchaser, one Howard, gave a draft or check on the Peoples Bank.of Ozark, Arkansas, payable to the order of Mrs. Ebba L. Beuckman for $1432. The abstract does not give the date of this draft or check, but it is indorsed by the Central National Bank of St. Louis, April 9, 1908. With this draft in his possession, indorsed in blank by Mrs. Ebba L. Beuckman, the defendant came to St. Louis, went to the business house of plaintiff, with whom it seems he was then employed, and handed this cheek so indorsed in blank by his wife to Mr. Ferguson, the president of the plaintiff company. He asked Mr. Ferguson if it was necessary for him (Beuckman) to indorse it. Mr. Ferguson told him it was not necessary, that they would have Mr. Baggott, who was an employee of plaintiff, attend to .its collection. He thereupon called Mr. Baggott in and handed this draft to him and told him to take it and have it cashed. Mr. Baggot apparently did this at the Central National Bank of St. Louis, writing over the signature of Mrs. Beuckman the words, “Pay to the order of A. F. Baggott,” and then indorsing the draft in his own name. — 61 — It was indorsed- as paid by the Peoples Bank, April U5 1908. So it is pretty clear that Benckman turned this check or draft over to plaintiff about April 9, 1908. Defendant testifies that a few days afterwards and after the plaintiff had found that the cheek was good and had cashed it, as he supposed, Mr. Ferguson called him into the office, Mr. Bogy then being present biit not having been present when Beuckman handed the draft over to Ferguson in the first instance, whereupon the defendant appears to have signed a note for about $2800, according to plaintiff’s account of date December 5, 1912, for $2802.06, the note dated April 15, 1908. Deducting from what he then owed plaintiff the difference between the original amount and the amount which defendant then paid plaintiff out of the draft, which ought to have been $832, but as shown by plaintiff’s account of date December 5, 1912,. was $828.45., Mr. Ferguson or Mr. Bogy handed over to the defendant about $600 out of the $1432 realized on the draft, crediting defendant with the difference. It is for about this amount that the remainder of the-counterclaim is made. up. We think that under the facts in the case, this must be considered as- a voluntary payment • and cannot be recovered, even conceding but not deciding, that this draft then belonged to defendant. It is claimed as to that by the learned counsel for plaintiff below that as that draft was the property of the wife, under our statute, it could only become the property of defendant by his wife’s express direction in writing authorizing him to take it into his possession. Authorities are cited to the effect that the mere blank indorsement by the wife is not sufficient to vest title in the husband. That point, however, we need not and do not decide. We proceed on the assumption that the draft belonged to defendant'and that out.of it he paid this $828.45 or $832 on his account. It will be observed that this occurred about the 9th of April, sometime after the so-called composition arrangement of March 23, 1908, had' been executed, and as far as the evidence tends to show after all the parties signing — 62 — it had been paid their 50 per cent, or the amount that they had received,and had executed releases for any balance. Their releases are dated March 25th, others March 26th, some March 30, 1908, none, as we recall, later. There is no evidence' of any compulsion, fraud or duress practiced upon defendant in having him pay over this $832. In the very lucid opinion of Circuit Judge Sanborn speaking for the United States Circuit Court of Appeals of this Judicial Circuit, in Crowder v. Allen-West Commission Co., supra, that learned judge, at page 525 has very concisely stated the rule which we think here applicable: “The debtor may recover back the excess, • which he has paid to the preferred creditor above the fixed percentage before the composition was made, and the excess he has been compelled to pay thereafter. But he may not recover anything which he has voluntarily paid after the composition was made pursuant to his agreement with the - preferred creditor. ’ ’ In that it ignored the question of lack of coercion under whch defendant paid over the money sought to be recovered by the counterclaim, and in fact, while purporting to cover the facts necessary to a recovery on the counterclaim, the learned trial judge committed no error in refusing the second declaration of law asked by defendant and purporting to cover the counterclaim. Our conclusion on this counterclaim is, that the action of the learned trial judge in declining to allow it in favor of defendant is supported by substantial evidence and is warranted b.y the law under the facts in the case. In the view we take of the case we do not think it necessary to pass on the point made by counsel for plaintiff,' that in failing - to include the claim now made for the amount covered by the counterclaim in his schedule of assets filed in the bankruptcy' proceedings, defendant cannot now assert it. Upon the whole case we hold that the judgment, in so far as it finds for defendánt on plaintiff’s cause of action is correct and should be affirmed, and that — 63 — the judgment on the counterclaim against the defendant and in favor of plaintiff is also correct and should be affirmed. It is accordingly so adjudged, further adjudging that the costs of the appeal be taxed equally against the respective parties. Allen and Becker, JJ., concur.