Case ID: ohio-st_15/html/0392-01.html
Source: Caselaw Access Project
Author: {"author": "Brinkerhoee, C.J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

J. T. Way & Co. v. S. T. & R. Langley.
    1. Where a composition agreement is made in good faith, between a debtor in embarrassed circumstances and his creditors, whereby the debtor is to pay a certain sum in hand-to be distributed pro ruta among his creditors, and to give his promissory notes on time for the balance of the first fifty per cent, of his entire indebtedness, and the creditors are, on the payment of the stipulated sum in hand and also of the notes given in pursuance of the agreement, to release to the debtor the remaining fifty per cent, of the original indebtedness, such agreement is valid and binding in law.
    2. Where, after the making of such a composition agreement, the payment and distribution of the money to he paid in hand, and the giving by the debtor of the notes on time, in pursuance of the agreement, the debtor voluntarily, and on his own suggestion, executes to one of bis creditors who is a party to the composition agreement, other notes for the remaining fifty per cent, of the original indebtedness to him, and which, by their terms will become due before any of the composition notes, such notes so given for the remaining fifty per cent, of original indebtedness are without consideration, and, as between the original parties to them, void; they being in fraud of the rights of other oomposition creditors.
    3. Where, in error, it is apparent from the record that the judgment of the court below was right, technical errors intervening on the trial, will not avail to disturb the judgment.
    Error to the district court of Gallia county.
    The original action was brought by the plaintiffs in error against the defendants in error, in the court of common pleas of Gallia county, to recover the amount claimed to be due upon three promissory notes made by tbe defendants to the plaintiffs, each dated July 27, 1857, and calling for $323.94, payable in thirty days, sixty days, and four months, respectively.
    
      The petition, filed February 18,1860, simply declared upon the notes, copies of -which were annexed thereto.
    The defendants answered:
    That on June 30,1857, they, -being in embarrassed circumstances, and having previously assigned all their property -to one Hunt for the benefit of their creditors, and being indebted to the plaintiffs in $1943.66, including interest, as well as in large sums to sundry other -creditors, and being unable to pay in full, the plaintiffs and all the other creditors (mortgage creditors excepted) by a written composition agreement, agreed to receive of defendants, or their said assignee, fifty cents on the dollar of their claims, in full satisfaction thereof, to be paid as follows: $1500 upon the execution of the agreement, to be divided, pro rata, among the creditors, and the balance of the fifty per cent, to be paid by the defendants in equal installments at six, twelve, eighteen, and twenty-four months from said date, with interest at six per cent., for which defendants were to give their notes.
    That said agreement further provides that its terms were to be complied with within sixty days from date, and, also, that if defendants should fail to pay said fifty per cent, as therein provided, then, whatever payments might have béen made, if any, should be a credit upon the original amount of the creditors’ claims, and defendants should be liable to pay the original amount thereof in full.
    Defendants aver that said written agreement was executed, and the terms thereof complied with, within said sixty days; that within that period they paid and distributed, pro rata, the $1500, it being eleven and one half per cent, -of the fifty per cent, (the amount paid plaintiffs being $111.76 5), and gave their promissory notes for the residue of said fifty per cent., as provided by said agreement.
    “ These defendants further aver and show, that on the 27th day of July, 1857, at which time these defendants paid over to said plaintiffs their pro rata share of said $1500, the said nlaintiffs required that these defendants should make and deliver to said plaintiffs, their promissory notes for the fifty per cent, of said original indebtedness so relinquished in said written agreement, and the defendants .admit that they did make and deliver said notes as by said plaintiffs required, and which are the notes upon which this action is founded, and none other. But these defendants deny that said notes so executed had, or were to have, any validity in law, only in the event that these defendants failed to comply with the conditions of said written agreement, by them to be complied with, but said notes were to be wholly null and void in law, if said defendants did pay over the balance of said fifty per cent, as provided in said written agreement. And these defendants aver and show that they did, in all respects, fully and promptly comply with the terms and conditions of said agreement by them to be performed, and that they did pay over to said plaintiffs, and to the other said creditors of these defendants, the balance of said fifty per cent, for which they had made and delivered their said promissory notes as aforesaid, within the time specified in said written agreement, with six per cent, interest thereon.
    
      “ Therefore, they say that the said plaintiffs, and the other creditors of said defendants did release and forever acquit these defendants from all liability to pay any other part or portion of said indebtedness, and that these defendants do stand in law released from the payment of any portion of the same, and that said notes upon which this action is founded are null and void.”
    To this answer the plaintiffs demurred on the ground that it did not state facts sufficient to constitute a defense to the action. The demurrer was overruled, and the plaintiffs replied. This reply was subsequently superseded by an amended reply, in substance, as follows :
    1. That John Cating and other creditors of defendants, not secured by mortgage, did not execute said composition agreement; whereby it became null and void.
    2. That defendants practiced a fraud upon plaintiffs when ■ said composition agreement was being executed, in this : That .the defendants procured the signatures of one or more of their creditors to the same, upon the secret understanding and agreement that their claims should be paid in full; and defendants have accordingly paid them in full.
    (There was no evidence in support of the allegations contained in these first and second replies, and no question there fore arises upon them.)
    3. Plaintiffs deny that they required or requested the defendants to give the notes sued on; but, on the contrary, the same were voluntarily given by defendants, at their own special request, subsequent to the execution of said composition agreement, and formed no part or parcel thereof.
    4. Plaintiffs deny that said notes sued on, were to have, and had, no validity in manner and form as averred in the answer; but, on the contrary, they were given bona fide, and were respectively, to be paid as expressed on the face thereof, without any condition attached thereto, either verbally or otherwise.
    5. Plaintiffs deny that defendants are, were, or have been relieved by plaintiffs from the obligation of said notes sued on ; but, on the contrary, the same are in full force, and have been recognized, held and regarded by the parties, since their date and maturity, as valid promises against defendants,- in manner and form as set forth in the petition.
    On April 3,1861, the cause was submitted to the court for trial upon the issues made by petition, answer and reply. The court found for the defendants.
    The'plaintiffs moved for a new trial, on the ground that the finding of the court was against the weight of the evidence and contrary to law.
    This motion was overruled, and judgment was entered for the defendants. The plaintiffs excepted, and took a bill of exceptions containing all the evidence.
    The effect of the evidence is stated in the opinion of the court.
    To reverse the judgment of the common pleas, the plaintiffs filed their petition in error in the district court, claiming that the common pleas erred:
    
      1. In overruling the demurrer to the answer.
    2. In overruling a motion for a new trial.
    3. In giving judgment for the defendants instead of for the plaintiffs.
    The district court affirmed the judgment of the common pleas.
    To reverse this judgment of affirmance, the plaintiffs filed their petition in error in this court.
    
      Cushing $ Hebard, and A. G. Thurman, for plaintiffs in error.
    
      S. A. Nash, and II. C. Noble, for defendants in error.
   Brinkerhoee, C.J.

One or more, both of the plaintiffs and defendants, were witnesses on the trial of the ease; and their testimony is conflicting as to whether the notes sued on were required by the plaintiffs to be given as a condition to the acceptance by them of the composition agreement, and of the notes given to them in pursuance thereof, or whether, subsequent to the making of the composition agreement, and after the acceptance by the plaintiffs of the notes made in pursuance thereof, these notes were voluntarily given by the defendants, on their own suggestion, for the fifty per cent, of the original indebtedness, which, by the provisions of the composition agreement, was to be released on the payment of the composition notes.

But, for the purposes of this case, we will assume that all the facts claimed by the plaintiffs on this point are true; and that the notes sued on were voluntarily given by the defendants, on their own suggestion, after the full execution of the composition agreement, except the payment of the notes given in pursuance of its provisions, and without any prior understanding or agreement between the parties that such further notes should be given.

Upon this assumption then, together with such further facta as stand admitted upon the face of the pleadings, what is the ca.«" ?

The defendants, being in embarrassed, circumstances, and largely indebted to plaintiffs and other creditors, a composition agreement is entered into between the defendants and the plaintiffs and other creditors, by the terms of which the defendants are to pa.y fifteen hundred dollars in hand to be distributed pro rata among all. their creditors, and, within sixty days thereafter, to give their notes, payable in six,, twelve, eighteen, and twenty-four months, for the balance of the first fifty per cent, of their entire original indebtedness; and, upon the payment of such notes, the remaining fifty per cent, of the original indebtedness was to be released. Within the sixty days, the fifteen hundred dollars were paid and the notes given; and, on the same day when these composition notes were given, but afterward, the defendants, on their own motion, voluntarily gave to the plaintiffs the ,notes now sued on, for the remaining fifty per cent, of their original indebtedness to the plaintiffs, payable respectively in thirty days, sixty days, and four months — all of which would, by their terms, become due before any of the composition notes would become due and payable by their terms. And prior to the commencement of this suit, the composition notes were paid as they became due.

It is now insisted in behalf of the defendants that the notes last given and now sued on are without consideration and void; and the courts below have so held.

On behalf of the plaintiffs, however, it is contended that evidence of want of consideration was inadmissible under the defendants’ answer; inasmuch as that relies, not on a want of consideration, but on a verbal and. collateral condition of defeasance, as a defense. But, in the view we take of the case, this question as to the admissibility of evidence under the answer, is of no consequence. For we take the case as pre,sented on the face of the- pleadings, in connection with the plaintiffs’ own testimony, introduced by themselves, and on the assumption that it is trué. And if upon the whole record, thus construed most favorably to the plaintiffs, it appear that there was no consideration for the notes sued on, and that the judgments of the courts below were right, no technical error in the proceedings below will avail to disturb the judgment.

The binding force and validity of a composition agreement made in good faith between an embarrassed debtor and his creditors, and fully carried into execution, can not, at this day, be questioned. Notes to Cumber v. Wane, 1 Smith’s L; C. 443-4.

But it is contended on the part of the plaintiffs, that although the fifty per cent, of the original indebtedness remaining after the payment of the composition notes, was, by the terms of the composition agreement, potentially released, still there was a moral obligation resting on the defendants to pay it; and that this moral obligation to pay, resting on the basis of a former legal obligation to pay, constitutes a good consideration in law to sustain these notes. How this might be, in case these notes had all been made payable at a day subsequent to the time when the last of the composition notes would become due and payable, or in case these notes had been given after all the composition notes to all the creditors had been paid, it is not necessary for us now to decide ; but, upon the state of fact which this case presents as existing at the time these notes were given, it seems clear to us that no such moral obligation rested on the defendants.By the provisions and spirit of the composition agreement, all the assets of the defendants were primarily devoted to the payment of the composition notes as they fell due; and good faith toward all the other creditors who were parties to the composition agreement, prohibited the defendants from diverting their resources to any other object, and forbade the plaintiffs to accept any such diversion. These notes were all drawn so as to become due before any of the composition notes would become due. They could not be paid when due except from the funds which had already been set apart for the benefit of all the creditors alike; and so far from there being a moral obligation resting upon the defendants to divert a portion of their assets to the payment of the old and potentially released indebtedness to the plaintiffs, morality and good faith required them to refrain from doing so. We are of opinion, therefore, that the notes sued on in this case were, when given, without any legal consideration ; and the record discloses nothing to relieve them from this original infirmity.

Judgment affirmed.

Scott, Day, White, and Welch, JJ., concurred.