Case Name: CHRISTIAN F. A. DAMBMANN, Respondent, v. HERMAN SCHULTING, Appellant
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1877-10
Citations: 19 N.Y. Sup. Ct. 1
Docket Number: 
Parties: CHRISTIAN F. A. DAMBMANN, Respondent, v. HERMAN SCHULTING, Appellant.
Judges: Daniels, J., concurred.
Reporter: Supreme Court Reports (Hun)
Volume: 19
Pages: 1–14

Head Matter:
CHRISTIAN F. A. DAMBMANN, Respondent, v. HERMAN SCHULTING, Appellant.
Moral obligation — agreement to pay debts when able — enforcement of — fraudulent concealment— effect of — duty of debtor asking release from creditor.
The plaintiff and others entered into an agreement by which, in consideration of one dollar to them paid, they agreed to discharge H. Schulting from the legal obligation to pay certain money loaned to him February, 1866“said Schulting giving his moral obligation to refund the said money in part or whole as his means will justify in the future.” Held, that Schulting was not thereby absolutely discharged from the debt, but that the agreement merely suspended his legal liability until he should be in such a condition as that a moral obligation to pay it would fairly exist, and that then his failure to perform this moral obligation would revive the legal liability, and the same could be enforced by action. (Brady, J., dissenting.)
In August, 1868, Schulting sold his stock in trade to S. & Co. for $225,000, out of which they were to pay debts amounting to about $193,000, the balance to go to him, he being also entitled to one-third of any amount which S. & Co. might realize on the sale of the stock over the purchase-price. In the same month he called upon plaintiff and made a statement as to his affairs, telling of the sale and stating that his one-third in the surplus over the $225,000 was worth little or nothing; that he had offered to sell it for $20,000. He had, in fact, made an offer to sell it at that price, but withdrew it in a few days; subsequently he realized $90,000 for it.
In October he paid the plaintiff $5,000, and procured from him a release of the whole debt, $10,000. At the time of this payment S. & Co. had already realized over $400,000, for the stock of goods, and a large amount was still unsold, of which facts he said nothing to the plaintiff, who was ignorant of them. Jleld that it was a fraud on liis part to conceal those facts from tlie plaintiff, and that the release given to him1 was avoided thereby. (Brady, J., dissenting.)
The utmost good faith is required of a debtor seeking to procure a discharge from his indebtedness for less than its full amount; and he is bound not to induce, or to permit the action of his creditor to be influenced, by any false representation, material concealment, or ignorance of any fact, touching his own real condition. (Brady, X, dissenting.)
Appeal from a judgment in favor of the plaintiff entered upon the trial of this action by the court, without a jury.
This action was brought to have a release, given upon the receipt of one-half of a debt due from the defendant, set aside on the ground that it was executed under a mistake of material facts caused by the representations and concealments of the defendant, and to recover from him the balance of the indebtedness remaining unpaid, with the interest due thereon.
It appears from the findings of the justice before whom the action was tried, that, on the 17th day of February, 1866, Charles F. Dambmann & Go. loaned to defendant $10,000, to be paid whenever he should be able to pay the same. That plaintiff is the sole surviving partner of said firm, and the sole owner of this claim. On the 7th of March, 1867, the plaintiff’s firm, with other of defendant’s creditors, entered into and executed an agreement with the defendant in these words:
“"We, the undersigned, agree, in consideration of one dollar paid to us, to discharge II. Schulting from the legal payment of the money loaned to him February 1, 1856, said Schulting giving his moral obligations to refund the said money in part or whole, as his means will allow in future.”
On the 8th of October, 1868, the defendant paid to plaintiff’s firm the sum or $5,000, and the plaintiff’s firm, with the other creditors of defendant, executed to defendant a general release under seal, releasing the defendant from all claims and demands. The $5,000 so paid being the $5,000 mentioned in the following receipt:
“New York, 1th October, 1868.
“ Received from Mr. Herman Schulting, five thousand dollars, in full of all claims to date. $5,000.
{ 1;B™} “ C. F. DAMBMANN & CO.”
That prior to this release, and in August, 1868, defendant sold his large stock of goods to Stursberg & Co. for $225,000, on the terms that Stursberg & Co. pay his debts — amounting to $192,000 — the balance of .the $225,000 to go to defendant, and with an agreement that Stursberg & Co. should pay to defendant one-third or any amount for which Stursberg & Go. might sell the said goods over $225,000.
That early in the same month of August, defendant made a statement to the plaintiff of his means in detail, of his sale to Stursberg & Co., and stated to plaintiff that the one-tliird interest in the sum of which the goods would realize over $225,000 was worthless, and he had offered to sell it for $18,000 or $20,000.
That defendant did offer to sell the said interest for $20,000, but in a few days after withdrew his offer and refused to consummate the same.
That said interest was worth $100,000, and defendant did realize $90,000 for the same.
That on the 6th October, 1868, defendant came to ,the store of plaintiff and obtained the release aforesaid on the payment by him of $5,000.
That a portion of the goods aforesaid had then been sold by Stursberg & Go. for $400,000, and a sale of the residue increased the total sum to $576,981.
That defendant, at the time, had knowledge of the sale ol said goods for $400,000. Plaintiff had not.
That defendant has means sufficient to pay the debt in question, and is worth upwards of $100,000.
G. Baimbridge Smith, for the appellant.
An action is not maintainable upon a moral obligation. (Stafford v. Bacon, 1 Hill, 539; S. C., 2 id., 353; Ex parte Hall, 1 Deac., 171; S. C., 38 E. C. L., 426.) The general release under seal, executed by the creditors of the defendant to him on the 6th of October, 1868, could only be declared invalid on the ground of fraud ; and to establish such fraud the evidence must be clear, precise and indubitable. (lefler v. Field, 52 N. Y., 621; Perm. P. Go. v. Shag, 3 "Weekly Dig., 211; Stine v. Sheris, 1 "W. & S., 195. Irwin v. Shoemaker, 8 id., 75 ; Bean v. Fuller, 4 "Wright, 47; Wilson v. Wilson, 2 Dev. Ch., 181; Dudley v. Scranton, 57 N. Y., 424.)
W. Watson, for tlie respondent.
An act done, or contract made under a mistake or ignorance of a material fact, is voidable and relievable in equity. (1 Story Eq., §§ 140-193.) The rule applies not only to eases where there has been a studied suppression or concealment of the facts by the other side, which would amount to fraud, but to many cases of innocent ignorance on both sides. (Curtis v. Lernitt, 15 N. Y., 193 ; 9 Pick., 130; 8 Barb., 233; Hammond v. Permock, 61 N. Y, 145; Park v. Gurney, L. B., 13 Eq., 79, 113; Smith v. Him. P. Co., L. B., 2 id., 264; Michigan v. Phoenix Bank, 3 N. Y., 24; Few York Exch. Go. v. BeWolf, 31 id., 273; Carter v. Boehm, 3 Burr., 1910 ; Yon Cortland v. Under-hill, 17 John., 405; Bóbson v. Pierce, 2 Kern., 164.) The agreement first set up in the answer to discharge Schulting without payment, he giving his moral obligation to refund the money in part or in whole, as his means will allow, is without consideration and void. (1 Smith’s Lead. Cas., 350, where cases are collected; Fitch v. Sutton, 5 East, 250; 2 B. & A., 313; Stratton v. Pas-tall, 2 T. & ít., 366.) If this were a composition agreement, it is subject to one fatal objection, viz., the terms on which it was given have not been complied with. Schulting, so far from giving his moral obligation to refund when he is able, directly refuses to refund. His ability was clearly shown. All the cases hold that if the terms of the composition agreement be not exactly followed by the debtor, the creditor is remitted to his original rights; the onus is with the debtor. (Fellows v. Stevans, 24 "Wend., 302; Balsen v. Arnold, 10 How., 530; Oughton v. Trotter, 2 N. & M., 71; Granby v. Ililay, 2 M. & S., 120 ; Posting v. Maggend/ye, 16 M. & W., 181; Evans v. Purvis, 1 Exch., 601.) This writing lacks every element of a composition deed. . The debtor pays nothing. The creditor does not discharge in full, but leaves a moral obligation in force. (Ga/rardv. Wool/ner, 8 Bing., 258; Fellows v. Stevens, 24 Wend., 302.)

Opinion:
Davis, P. J.:
The learned justice at Special Term, in deciding this case, pronounced the following opinion:
" Yan Yorst, J. Tlie agreement, signed by the plaintiff's firm, with others of the defendant's creditors, on the 17th day of March. 1867, is in these words, 'We, the undersigned, agree, in consideration of one dollar paid to us, to discharge H. Schulting from the legal payment of the money loaned to him, February, 1866, said Schulting giving his moral obligation to refund the said money in part or whole, as his means will allow in the future.'
" I do not regard this paper, as is claimed by the defendant's counsel as an absolute discharge of the debt in question, and there was substituted and accepted in place thereof a moral duty only, not to be enforced by action in the event that the debtor should afterwards acquire means sufficient to enable him to pay the claim in whole or in part.
" The agreement to discharge ' from the legal payment ' is, in fact, conditioned upon the debtor's promise to refund the money loaned should he acquire the means in the future to do so. If he did not acquire such means then all legal claim was abandoned, but if he did, the legal claim existed, to be enforced by action in the event that the conscience of the debtor refused to recognize the obligation to pay the money.
"The paper may, in truth, be regarded as an agreement not to enforce the legal liability, so long as the debtor was without means to pay.
"And the evidence shows that the defendant yet considered himself under a valid obligation to pay; hence afterwards, and on the 6th day of October, 1868, he paid the plaintiff $5,000 of the oidginal loan of ten thousand, and received the signature of the plaintiff's firm, under seal, to a complete and full release from all claim and demand whatever. The plaintiff claims that the signature of his firm was obtained to the release by false statements and suppression of material facts made by defendant, and that, had the truth been stated they would not have executed the release. In August, 1868, the defendant sold his large stock of merchandise to Stursberg & Co. for the sum of $225,000, the purchasers to pay his debts thereout, amounting to about $192,000. By the conditions of sale the defendant was entitled to one-third of any amount Stursberg & Co. might realize on a resale thereof over and above the amount they had paid for same.
" Early in the same month the defendant made a statement to the plaintiff of his means, entering into details, and, among other things, gave the particulars of his transactions with Stursberg & Co., and added,' ' as for that one-third interest in the sum which the goods would realize over $225,000, that was worthless. It was worth little or nothing. In fact, he had offered to sell it the other day for $18,000 or $20,000.
"Now, the facts with regard to such one-third interest and its value may bo in short stated as follows: The defendant did offer to sell the same to one Yon Keller for $20,000, but in a day or two afterwards withdrew the offer, and refused to consummate it. This one-third interest was, in truth, worth about $100,000. Defendant did in the end realize in money $90,000 for the same.
" When the defendant called in October and paid the $5,000, and obtained the release, Stursberg & Co. had already realized over $400,000 for the goods then sold, and subsequent deliveries increased the total sum realized to $576,981.
"Yet the defendant made no statement to the plaintiffs, when he obtained the release, with respect to the value of his interest in such proceeds. I think he was under a positive duty to have done so. An obligation was resting upon him to pay the debt due plaintiff in full, if his means were sufficient for the purpose. Ilis interest in the one-third of the proceeds of the sales already realized, and with what might be reasonably expected to be realized from the residue of the goods, were enough, with other means in his possession, to pay in full all the claims covered by the agreement of March, 1867.
" The parties were not standing upon an equal footing. Plaintiff was ignorant of the facts, having been informed, in August, by the defendant that, in his estimation, the value of his interest was little or nothing. lie was under a positive duty to correct the former judgment he had given, and to state the facts fully and truly.
" His concealment of these facts rendered the release he obtained inoperative as a discharge of the plaintiff's claim. And as the evidence shows that the defendant has the means to pay, the release must be declared void, and the plaintiff entitled to judgment for the amount of the loan unpaid, with interest."
This opinion seems to me to be a correct exposition of the law applicable to the facts found by the Special Term, and a careful examination of all the evidence satisfies me that the findings of fact made by the learned judge are sustained by evidence, and are substantially correct.
Tlie instrument of March, 1867, by its express terms, leit the defendant- under a moral obligation to refund the money borrowed in February, 1866, in part or in whole, as his means would allow in the future. The moral obligation, thus assumed, was the consideration on which the discharge from legal liability was given. It differed in its nature from that kind of moral obligation which exists when a debt has been discharged by operation of law or by some proceeding in m/oitum, and which, in some cases, has been held to be a sufficient consideration to uphold an express promise to pay; for in this case no future express promise ivas contemplated or required. Tlie fact that the means of the defendant in the future would allow payment of the money in whole or in part, brought the moral obligation into such vigorous operation as to make it a duty to pay, the failure to perform which restored the legal liability. Or, in other words, the instrument was nothing more or less' than an agreement that the legal liability should be suspended until the debtor should be in such condition in the future that a moral obligation to pay would fairly exist, and then his failure to perform the moral obligation was to revive the legal liability. The parties were entirely competent to make such a contract, and it seems very clear that that was what they intended to do, and no forced construction or application of technical rules should prevent a court of equity from carrying out the intent. It is as if the defendant had said to this creditor "You release me now from legal liability, and as soon as my future means become such that I ought conscientiously to pay, I will do so by force of the moral obligation which shall continue in full effect."
^Representations had been made by the defendant as to the condition of his affairs which may have been believed by him at that time to be true ; and it is clear that the plaintiff's firm had acted in giving the instrument above mentioned in reliance upon such representations. It was known to the defendant that they so relied. But when he came for the absolute release in October following, his circumstances had materially changed. He had repudiated the sale of his interest in the stock of goods to Yon Keller, and he knew that a sum had already been realized (to wit, $400,000), on the sales then made, and that a large amount remained unsold, which advanced the value of his interest far beyond the sum at which he had before represented it to plaintiff's firm.
The plaintiff's firm were ignorant of this change of circumstances, and were acting under such ignorance. The defendant knew, or certainly had reason to know, they were so acting. I think it was his plain duty to have undeceived them by a frank and full disclosure of his altered circumstances and prospects. It is true the plaintiff's firm might have acted precisely as they did had such disclosure been made, but the court cannot speculate upon that probability because they have not had the opportunity of determining for themselves how they would act with such knowledge. They have acted without knowledge of facts hnown to defendant, and which it was his moral duty to state to them, and for that reason they may repudiate their action. The strict rules that apply between parties contracting at arms length, in which the better knowledge of either party is his own property, have no application to these parties, because the obligation does rest upon a debtor who is seeking to get a discharge from his indebtedness for less than its full amount, on the ground of his inability to pay more, not to induce or permit the action of his creditor by any false representation or material concealment or ignorance of any fact touching his own real condition. The utmost good faith is required on the part of the debtor, and he has no right to permit his creditor to act upon his belief in the correctness of representations previously made to him which have become untrue by reason of changes in the debtor's own affairs.
It is apparent that the changes which had taken place, and were unknown to the plaintiff in this case, were such as made the defendant then, or would soon, make him fully able to pay the whole of the money borrowed. He should have made the facts known to the plaintiff's firm, and his-failure to do so prevents his using the release as a defense in this suit.
I am not able, therefore, to concur with my brother, Brady, but am of opinion that the judgment should be affirmed for the reasons set forth in the opinion of Yan Yorst, J., indicated in this memorandum.
Daniels, J., concurred.