Case Name: Lee versus Sellers et al.
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1875-11-15
Citations: 81 1/2 Pa. 473
Docket Number: 
Parties: Lee versus Sellers et al.
Judges: Before A&new, C. J., Sharswood, Williams, Merour, Gordon, Paxson, and Woodward, JJ.
Reporter: Pennsylvania State Reports
Volume: 81 1/2
Pages: 473–477

Head Matter:
Lee versus Sellers et al.
1. Sellers being embarrassed, made a composition with his creditors, conveying to trustees his real estate, the proceeds to be divided between them pro rata, they releasing all their claims on condition all the creditors should sign. The plaintiff, a creditor, being requested by defendant, another creditor', refused to sign unless defendant would agree to pay any unpaid balance due him; the defendant, without the knowledge of the other creditors, so agreed; the plaintiff signed, and other creditors signed. Held, that the plaintiff could not recover from defendant the balance due him.
2. The foundation for a composition deed is equality of provision for all the signers, and all must stand in like condition.
3. Each signer consents to a proportional sacrifice in consideration of a liba benefit with the others; no one can bargain secretly with the debtor or others for more.
4. The transaction between the plaintiff and defendant was a fraud. Per Stowe, P. J.
November —, 1875.
Before A&new, C. J., Sharswood, Williams, Merour, Gordon, Paxson, and Woodward, JJ.
Error to the Court of Common Pleas, No. 1, of Allegheny County, of October and November Term, 1875, No. 148.
This was an action of assumpsit, brought August 31st,. 1872, by II. N. Lee against Robert E. Sellers and Eben S. Ward, partners, trading as R. E. Sellers & Co.
By an agreement bearing date the 4th of March, 1869, the-creditors of F. Sellers & Co. stipulated that F. Sellers & Co. should convey all their real estate, held as partners, or individually, to Thomas J. Hoskinson and others in trust, to be sold for the benefit of the creditors of the firm, the proceeds to be divided fro rata amongst them until their debts be-paid in full; that no proceedings should be taken by any of the signers to interrupt, etc., the due execution of the trust,, nor against F. Sellers & Co. until the final distribution of the-proceeds of the real estate should be made amongst the creditors. The agreement was signed by the creditors, amongst whom were II. N. Lee, plaintiff, and R. E. Sellers & Co., defendants.
Afterwards the creditors executed a release bearing date the 10th day of April, 1869, to F. E. Sellers & Co., which recited that Francis Sellers, one of the firm, had executed and delivered to the same trustees two mortgages conditioned together for the payment of $100,000, on certain real estate belonging to Sellers and his wife, to be paid by annual instalments of $20,000 each, the last to be paid on the 10th of April, 1874, in consideration of which the creditors released the firm of F. Sellers & Co. and its individual members from the claims which they had against them, the release not to interfere with the deed of trust of March 4th, 1869, and the proceeds of the fmortgages were to be distributed by the trustees in the same manner as is provided in the deed of trust; “ and it is further understood that this release is not to bind any creditor until all the creditors of the said firm of F. Sellers & Co. have signed this release.”
This release, also, was signed amongst others by the defendants and the plaintiff.
On the 17th of November, 1869, the defendants executed and delivered to plaintiff an agreement reciting the deed of trust, etc., of F. Sellers & Co. to Hoskinson and others, by which the proceeds of their real estate were to be distributed amongst their creditors, of whom the plaintiff was one, to the amount of $10,000, and that it was doubtful whether those proceeds would pay all the debts of the firm, and that the members of the firm were desirous to be released from such indebtedness as might remain after the distribution; it was therefore agreed “ that in consideration of the premises, and that II. N. Lee will sign and execute such release,” the defendants agreed and bound themselves to pay the plaintiff “ whatever balance may remain unpaid of such indebtedness before incited of F. Sellers & Co. to him, after ■ deducting from such entire indebtedness the pro rata share payable to said H. N. Lee from the proceeds of sale of such real ■ estate; to be paid as soon as the same may be ascertained.”
The plaintiff filed his affidavit of claim, averring that ■defendants owed him $3007.46, with interest, by virtue ■of the above-mentioned agreement, which was set out in totidem verbis in the affidavit. He further averred that in pursuance of the agreement he released F. Sellers & Co. and ..agreed to accept in lieu thereof his pro rata share of the proceeds of the real estate of F. Sellers & Co., and to look to the •defendants for the residue of the indebtedness of F. Sellers & Co. to him; that the trust had been executed by T. J. Hoskinson and the other trustees, and the share of the plaintiff had been applied to his indebtedness, and that the above sum of $3007.46, with interest, still remained due to him, etc.
The defendants’ affidavit of defence set out the agreement of March 4th, 1869; that afterwards the release of April 10th, 1869, was prepared for execution by the creditors; that on the express demand of one of the creditors, who refused to sign unless a clause was inserted by which the release should be void unless all the creditors signed, such clause was inserted in the release. The release having been signed by several of the creditors in good faith it was presented to plaintiff, who at first refused to execute it, but proposed to the defendants to sign it if they would bind themselves to pay any balance which might remain after deducting what plaintiff might receive from the trustees. To induce the plaintiff to sign the release the defendants, “ without the knowledge or consent of the creditors, executed and delivered to him a bond conditioned as aforesaid, whereupon the said H. N. Lee executed the release.” Afterward the release was executed by two other creditors, without any knowledge of'defendants’bond above mentioned; and the release having been signed by all the creditors became an absolute discharge of all the debts of F. Sellers & Co. That the defendants’ bond was given without the knowledge or consent of any of the other creditors, who executed the release in good faith ; that the only consideration on which defendants executed their bond to plaintiff was to induce him to sign the release. The defendants further averred that he had been informed, and they believed, that their bond was fraudulent and void, and could not be enforced, having been given in fraud of other creditors.
A rule for judgment for want of a sufficient affidavit of defence was discharged, and the case went to trial, January 14th, 1875, before Stowe, P. J.
The plaintiff gave in evidence the contract of November 17th, 1869, between himself and the defendants ; the balance of $3007.46 claimed to be due from F. Sellers & Co. to him not being controverted, and rested.
The defendants, under objection and exception, gave in evidence the instruments dated March 4th and April 10th, 1869, respectively.
It was admitted by the plaintiff* that the other creditors had no notice of the agreement between the plaintiff* and defendants when they signed the agreement of composition.
F. Sellers testified: Ihe papers of March 4th and April 10th, 1869, comprised the whole of the creditors of his firm.
R. E. Sellers, one of defendants, testified: That the defendants were largely indorsers of F. Sellers & Co., and had learned that the trust property -would not pay their debts ; the plaintiff refused to sign the composition unless he was paid in full; the payment of F. Sellers & Co. would have broken the defendants ; the article of agreement was given to plaintiff to induce him to release and sign the composition deed ; there was no other consideration.
The Court charged: That if the jury should find the facts alleged by the plaintiff and defendants, they should find a verdict for the plaintiff, subject to the opinion of the Court, whether, under the facts set out in the affidavit of defence, the plaintiff was entitled to recover in this suit.
The verdict was for the plaintiff for $3528.30, subject to the opinion of the Court on the question of law reserved.
On the 8th of May, 1871, Judge Stowe delivered the following opinion upon the questions of law reserved:
The questions of law reserved in this case arise under the plaintiff’s 2d, and defendants’ 1st point, viz.:
Plaintiff’s 2d point: “ That the facts in evidence do not constitute a defence in law to plaintiff’s claim.”
Defendants’ 1st point: “ That if the jury believe that the instrument sued upon was given by the defendants to the plaintiff to induce him to sign the deed of composition between F. Sellers & Co. and their creditors, and to give him an advantage beyond the other creditors, and that in consideration thereof the defendants signed said composition, and that the other creditors signing it did so without any knowledge that said instrument had been given, the same is illegal and. void, and their verdict must be for defendants.” The two points raise the same question.
There was no substantial controversy as to the facts adduced by either party in regard to the circumstances under which the composition deed was signed by the plaintiff. And it was, at the instance of counsel, submitted, in view of such fact, for the jury to say whether they believed the allegations contained in the plaintiff’s affidavit of claim, and also the defendants’ affidavit of defence, the testimony showing that both were true;' and if so, for them to find a verdict for plaintiff, subject to the opinion of the Court upon the facts'therein stated, and thus raise the question of law upon the facts contained therein, the foregoing points being intended to raise the same question.
The facts then contained in the respective affidavits are the facts found by the jury, and raise the question at law between the parties.
Upon this question we are of opinion that the facts contained in the affidavit of defence under the law constitute a fraud, and that the defendants are entitled to recover, and therefore direct judgment to be entered for them non obstante veredicto.
The plaintiff removed the record to the Supreme Court by writ of ei-ror; he assigned for error the entering of judgment for defendants, non obstante veredicto.
G. Shims, Jr., for plaintiff in error.
This was not an agreement between the debtor and one creditor that, in consideration of the release, the debtor would pay him in full, whilst the other creditors got but their proportion. But it was an agreement that did not affect the other creditors ; they got the whole of the debtor’s estate. The defendants might have bought the plaintiff’s claim by paying it in full, and then themselves signed the composition for all, getting but the proportion that plaintiff would have got. The defendants cannot set up their own fraud : Sherk v. Endress, 3 W. & S., 255; Fox v. Cash, 1 Jones, 207; Stewart v. Kearney, 6 Watts, 453.
M. W. Acheson and Kerr Guthrie, for defendants in error.
Under a composition, any security or advantage given to a particular creditor, whether by the debtor or a third party, not provided for in the composition, and not disclosed, is against public policy and void: Cullingworth v. Lloyd, 2 Beavan, 385 ; Coleman v. Waller, 3 Younge & Jervis, 212; Jackman v. Mitchell, 13 Vesey, 581; Sadler’s Case, 15 Id., 52 ; Leicester v. Rose, 4 East, 372; Chitty on Contracts, 758 ; Kerr on Frauds, 212; Story’s Equity Jurisprudence, section 378, et seq.; Patterson v. Boehm, 4 Barr, 507 ; Russell v. Rogers, 10 Wendell, 473; Lawrence v. Clark, 36 N. Y., 128.

Opinion:
Judgment was entered in the Supreme Court, November 15th, 1875.
Per Curiam :
The true foundation of a composition deed is equality of provision for all the signers of the deed, and that all shall stand in like condition. Each consents to an equal proportional sacrifice of his debt in consideration of a like benefit with the others, and no one has a right to bargain secretly with the debtor, or others, for more; or to be permitted to stand in a better condition. Fair and equal dealing with each other, and suffering a like sacrifice, are the inducements to unite together to obtain from the debtor the benefits proposed for the creditors, and confer upon him the benefit they desire to afford to him. We find no error in this record.
Judgment affirmed.