Case ID: misc_28/html/0475-01.html
Source: Caselaw Access Project
Author: {"author": "Freedman, P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Henry E. Bowns, Respondent, v. Samuel Stewart, Appellant.
    (Supreme Court, Appellate Term,
    July, 1899.)
    I. Composition deed — Reservation o£ a contingent liability of the debtor upon an unmatured note.
    Where the holder of an unmatured note, executed by A. D. Coe, signs a deed compromising all the debts of his immediate indorser upon the said note, adds to the statement therein of his claim the words “ Contingent as endorser A. D. Coe Note, $367.50 ”, receives his stipulated dividend, subsequently has the note protested for nonpayment, and thereafter accepts a partial payment upon it from the prior indorsers, he must be deemed to have intended to look to them for some payment, and therefore he cannot recover the whole amount of the note from his immediate indorser where he fails to allege in his complaint that he has made any effort to compel the prior indorsers to .pay, or that he has notified the immediate indorser of the deficiency arising from their failure to do so, or that the immediate indorser has, after demand, failed to comply with the conditions of the composition deed.
    S3. Same — Creditors should obtain no advantage over each other.
    Under a composition deed no one creditor should be permitted to obtain an advantage over the others.
    Bowers v. Stewart, 27 Misc. Rep. 842, reversed.
    Appeal by the defendant from a judgment in favor of the plaintiff, of the G-eneral Term of the City Court, affirming a judgment of the City Court entered upon the decision of the trial judge.
    John H. Kogan, for appellant.
    Putney & Bishop, for respondent.
   Freedman, P. J.

This action was brought to recover from the defendant the amount of a promissory note upon which he was the second indorser.

The note was made by one Coe, payable to the order of Grieldemeester & Kroeger, who indorsed it and transferred it to the defendant, who also indorsed and transferred it to the plaintiff herein. Subsequent to such transfer the defendant made a general assignment for the benefit of his creditors, including this plaintiff. Before the note became due the defendant compromised his debts with his creditors, and they executed a composition deed, by the terms of which they each agreed to accept the sum of forty-two and one-half cents for each dollar owing them by the defendant. It was provided in said deed, that the aforesaid sum of forty-two and one-half per cent should be paid to the several creditors in cash and notes as follows: Ten per cent in cash upon the aggregate amount of each claim, seven and one-half per cent in notes payable in four months, seven and one-half per cent in notes payable in six months and seventeen and one-half per cent in notes payable in nine months, the cash to be paid and the notes to bear date Hay 18, 1896. The deed was executed on Hay 11, 1896, and at that time the defendant was indebted to the plaintiff in the sum of $1,917, of which the note in suit, amounting to the sum of $357.50, constituted a part. The plaintiff, when he executed the deed aforesaid, stated the 'defendant’s indebtedness to him to be $1,549.50, and then added these words regarding the note: “ Contingent as endorser A. D. Coe Rote, $367.50.” The assignee was discharged upon the defendant’s complying with the terms of the deed, by paying on said 18th day of Hay, 1896, the cash percentage, and giving his notes, as specified therein, for the amount of his accrued indebtedness. The note in question fell due Hay 22, 1896, and in August, 1896, this action was begun against the defendant, the plaintiff claiming the full amount of the note. At the time the action was commenced nothing had been paid thereon, but, in July, 1897, the prior indorsers paid to the plaintiff the sum of $153.20, to apply on said note. These facts are undisputed, and in the City Court the plaintiff had judgment for the full amount due on the note, less said sum of $153.20, and the defendant appealed therefrom to the General Term of the City Court, which affirmed the judgment.

The complaint does not allege that the defendant made default in fulfilling the covenants and conditions of the composition deed. The liability of the defendant, therefore depends npon the legal construction and effect to be given to the language above referred to used by the plaintiff, regarding the note in question. By uniting with the other creditors of the defendant, and by the execution of the deed, the plaintiff thereby bound himself to accept from the defendant the sum of forty-two and one-half per cent upon what-' ever indebtedness existed in his favor against the defendant. White v. Kuntz, 107 N. Y. 527; Baxter v. Bell, 86 id. 199; Chemical National Bank v. Kohner, 85 id. 189. At the time of the execution of the deed there was nothing due, although there was a contingent liability upon the note. The word “ contingent ” ordinarily means “ liable to occur.” In law its meaning is, “ dependent upon an uncertain future event.” Standard Dic. 406, Vol. 1. The words “ contingent as endorser ” in the ease at bar are equivalent to saying, The defendant is liable as endorser to an extent dependent upon the future acts (or payments) of the prior obligors. The language used leads to the conclusion that, at the time the deed was executed, the plaintiff regarded the note as a valid, independent obligation, enforceable to some extent at. least against the maker or prior indorsers, and that he intended thereby to reserve to himself any benefits to be derived therefrom, and also the right to collect of and from the defendant, in accordance with the provisions of the deed, such sum as might fall upon the defendant to pay after the plaintiff had exhausted his remedies against those primarily liable. What that amount would be was not, at the time the deed was executed, capable of determination, as the note was not due, and what that amount would become in the future was also uncertain, as, in case either the maker or the prior indorsers paid the whole or any portion of the note, the amount of the defendant’s indebtedness and his liability thereunder would be decreased by the sum so paid. That reservation and right were assented to by the other creditors, as shown by their execution of the deed with that expression contained therein. This is the reasonable construction to be given the language referred to, taken in connection with all the facts and circumstances in the case, and the only one that would do equal justice between all the parties. Under the construction claimed by the respondent, that the defendant is liable for the full amount of the note, or even for the full amount of the balance remaining unpaid, after crediting thereon the amounts paid by the prior obligors, the plaintiff would be enabled to not only recover more from the defendant than he stipulated in his deed to receive, but more than aiiy of the other creditors would receive.

Moreover, the plaintiff ought not to be allowed to violate the true spirit and essence of a composition deed, by so construing the language therein as to thereby enable him to obtain an advantage peculiar to himself, not contemplated by, and superior to, the rights and claims of the other creditors. “ Every composition deed is in its spirit, if not in its terms, an agreement between the creditors themselves as well as between them and the debtor. It is an agreement that each shall receive the sum, or the security which the deed stipulates to be paid or given and nothing more.” Breck v. Cole, 4 Sandf. 79-83. Had he obtained any such advantage secretly, it would have constituted a fraud, and any contract thus made could not have been enforced. Russell v. Rogers, 10 Wend. 474; White v. Kuntz, supra.

By the construction given by us, the provisions of the deed are carried into effect and each of the creditors receive their just and equitable share of the debts owing them, according to their agreement with the defendant and with each other. That such was the construction placed thereon by the plaintiff is evidenced by his causing the note to be protested for non-payment, notice thereof given to the indorsers, and the receipt by him of the sum of $153.20 from Gildemeester & Krueger, the prior indorsers thereon. It follows then that the plaintiff could not maintain this action to recover the whole amount of the note in question, unless the defendant was in default in performing the conditions of the agreement between himself and his creditors, as contained in the composition deed. Hadley Falls National Bank v. May, 29 Hun, 404. In the case at bar this does not appear. The note in question was not due at the time the deed was executed. The complaint contains no allegation of default on the part of the defendant, nor is any attempt made to prove such to be the fapt upon the trial

The' plaintiff having reserved the right to collect the note of the maker and prior indorsers, assumed the duty of -making at least some effort to enforce the payment from them, and it is only after notice to the defendant of the amount of any deficiency arising from the failure of the prior obligors to make payment on the note, and demand upon him to comply with the terms and conditions of the composition deed, and the refusal or neglect on his part to perform thereunder, that the plaintiff can maintain this action.

Judgment must, therefore, be reversed.

MaoLean and Leventritt, JJ., concur.

Judgment reversed and new trial ordered, with costs to appellant to abide event.