Court Opinion

ID: 5568075
Source: CourtListenerOpinion
Date Created: 2022-01-11 01:06:12.130955+00
Date Added: 2024-06-11T08:35:39.750233
License: Public Domain

Lewis, J.
The official report states the facts.
1. It is a well-settled rule of law that a creditor is not bound by an agreement to take less than the amount of his debt, unless it has been executed by the payment of the money, or the giving of additional security, or the substitution of another debtor, or some other new consideration. Such is the language of our Civil Code, §3735. The reason for the rule is evident. Such a promise, being without any consideration to-support it, is a mere nudum pactum. But this doctrine is usually limited in its application to single agreements entered into between a debtor and creditor, in which the rights of others are in nowise involved. It is equally as well established that a contract is binding when it forms a part of a composition in which several creditors join, mutually agreeing, on account of the embarrassed or insolvent condition of their common debtor, to forbear pressing their claims to the full amount, and to release their debtor on payment of a certain portion of his indebtedness. The nevi consideration which enters into and supports such an agreement is the undertaking of the othe’r creditors to give up a portion of their claims. Por a collection of authorities on this subject, see 3 Am. & Eng. Enc. L. 386-389. In the case of Perkins v. Lockwood, 100 Mass. 249, the doctrine is succinctly stated as follows: “The reason for upholding such an agreement is that the rights and interests of other parties become involved in the arrangement, and this affords a new and legal consideration for the promise. It would be contrary to good faith for a creditor who has secured the advantage of such an arrangement to disregard its obligations by proceeding to enforce the balance of his demand; and the debtor is entitled to avail himself of this consideration in defense.” In the case of Brown v. Farnham, 48 Minn. 317 (51 N. W. Rep. 377), Vanderburgh, J., speaking for that court, says: “The composition deed is an agreement between the creditors and the defendant, which involves rights and interests common to all the creditors who join in it. It is an agreement that each shall receive the amount or consideration stipulated *293for, and nothing more, as the basis of the debtor’s discharge from the debts due to such creditors. Each creditor must be presumed to act on the faith of the engagement of the others, and the beneficial consideration to each is the obligation of the rest to forbear; and the debtor secures to them a common fund for the benefit of all, so that all are mutually bound; and there is a consideration as between themselves, of which the debtor is also entitled to avail himself”; citing Perkins v. Lockwood, supra; White v. Kuntz, 107 N. Y. 515 (14 N. E. Rep. 423); Good v. Cheesman, 2 Barn. & Adol. 328; Goodrich v. Stanley, 24 Conn. 613, 621. See also Clark on Con. 194, and cases cited in note; 1 Beach on Con. §443.
2. It only remains to be seen whether the principle above announced is applicable to the facts pleaded in this case. In the contract of February 25, 1895, embodied in the plea, it seems implied from its terms that the same was entered into by several creditors of the debtor, and that it is supported by the further consideration that certain mortgage-creditors would not foreclose their -mortgages for forty-five days, so as to give the debtor opportunity to realize from his assets an amount sufficient to pay the compromise agreed on with the unsecured creditors. But the plea of this contract as a composition agreement is defective, in that it only alleges the “contract was made between the plaintiffs and the defendants in this case.” The plea, however, further alleges that an additional contract was afterwards made in behalf of the defendants and their “creditors, including plaintiffs herein,” whereby defendants were to pay to each of the unsecured creditors to the preceding contract fifty per cent, of the amount due them, which was to be accepted by them in full settlement of their indebtedness. The plea further alleges that said per cent, was paid to each of the other creditors, who accepted the same in full settlement; and that afterwards a like percentage was tendered to the plaintiffs, who refused -to accept the same. A fair construction of the entire plea is that a mutual agreement was entered into by the unsecured creditors of the debtor, to take less than their claims, on account of the embarrassed, and probably insolvent condition of the debtor; by virtue of this *294mutual arrangement of forbearance on the part of the creditors, the debtor was enabled to raise the amount agreed on in the settlement, and, in pursuance of the agreement, had actually paid all the other creditors, and tendered the defendants in error their pro rata portions. The plea might have been fuller and more explicit; but, in the absence of any special demurrer on this ground, it was not open to the general objection that it set forth no ground of defense. To allow a creditor, after he had entered into such an agreement, upon which all the others had acted, to repudiate his contract and sue for the entire amount of his original debt, would be sanctioning the perpetration of a fraud upon those who had surrendered a portion of their demands for the common benefit of all. We are clear that the court erred in sustaining the motion to strike this plea, and the judgment is accordingly

Reversed.

All the Justices concurring.