Court Opinion

ID: 6381510
Source: CourtListenerOpinion
Date Created: 2022-06-25 00:01:26.205976+00
Date Added: 2024-06-11T15:50:22.417442
License: Public Domain

On petition for reargument

Levinthal, J.,
This is a suit to recover the balance of a loan advanced in 1932 by plaintiff’s decedent to defendants. On June 24, 1940, this court made absolute plaintiff’s rule for judgment for want of a sufficient affidavit of defense as to $1,350 of the claim. Defendants now seek a reargument, it being averred in their petition that the court erred in refusing to sustain their contention that a composition agreement effected in 1933 and pleaded in the affidavit of defense bars plaintiff from asserting this claim.
The composition agreement was entered into by all of defendants’ creditors, but plaintiff’s acquiescence was conditioned upon her receiving a secret preference, a promise to pay her claim in full. A note for the full amount of her *34claim was, therefore, executed by defendants after the other creditors had been paid their stipulated shares. This note was renewed yearly until 1939.
In refusing to sustain the defense pleaded, we held that the preference, though voidable when first agreed upon, could now be enforced because the renewal notes given each year operated as a waiver of the defense theretofore available to the debtor. Defendants have pointed out to the court that the general law on the subject is not in accord with our position. In 12 C. J. 296, §106, it is stated:
“An agreement, promise, or security for the payment of all or a part of the balance of the debt compounded, given to a creditor after the composition is effected, will be void and unenforceable as a fraud' on the others if given in pursuance of a secret agreement or understanding existing at the time of the composition; and even if there is no such agreement or understanding, it will nevertheless be equally unenforceable, as a fraud, if the composition is executory and not yet performed, and as without consideration if the composition is executed or performed, unless there is new consideration, or the promise is under seal, for in the latter case there is no moral obligation to pay the balance over the composition. On the other hand, it has been held that an arrangement made by a debtor with a creditor, in preference of a particular debt, after a composition has been completed, will not be considered a fraud on the other creditors, if there was no previous agreement to make such an arrangement which operates as a consideration for the composition.”
The only Pennsylvania case involving this exact problem that has come to our attention is Callahan v. Ackley, 9 Phila. 99 (1873), which, though in accord with the above statement of the law, has apparently never been cited in later decisions.
A payment of the balance or part of the balance remaining unpaid after the composition, on the other hand, made after the composition and not in pursuance of any *35prior secret agreement or understanding, is not a fraud on the other creditors, is considered voluntary, and cannot be recovered by the debtor: 12 C. J. 297, §107.
The legal basis for refusing to allow the preferred creditor to enforce his secret agreement and for permitting the debtor to recover payments made pursuant thereto prior to the composition is that the debtor, in view of his distressed circumstances, acted under duress: Glenn on Liquidation (1935) §101. That this is often only a fiction of the law is clear from the fact that the debtor himself is sometimes the moving party in effecting the preference, yet that circumstance does not affect the debtor’s right to disregard the agreement. See Batchelder & Lincoln Co. v. Whitmore, 122 Fed. 355, 361 (C. C. A. 1st, 1903). But if duress is the reason for the unenforcibility of secret preferences, the agreement thus coerced is voidable, not void. For duress, save in exceptional cases, does not absolutely vitiate a transaction, but “generally only gives to the party coerced a right to rescind the transaction whether executory or executed.” See 5 Williston on Contracts (rev. ed. 1937) §1626. It is upon this theory that payments, made after the composition and not pursuant to a secret agreement, cannot be recovered by the debtor. Since the coercion is then removed, there is no principle upon which the courts can hold that the payments made were other than voluntary: Batchelder & Lincoln Co. v. Whitmore, supra, p. 360.
It would seem necessarily to follow that an executory promise made after the composition is completed should be equally untainted. The duress is no longer operating upon the debtor. He has, it is true, a defense to suit upon the prior promise, but his renewal of that promise should not be rendered meaningless by a court, overzealous in its attempt to discourage preferences in order to preserve equality among the composing creditors. It is as voluntarily made as an actual payment of money, and should be treated as a manifestation by the debtor that he has waived the defense previously available to him. *36In no way would this prejudice other creditors, for their right to avoid the composition and to revert to their original claims remains unaltered.
In this case, however, we are not forced to disagree with the established rules of law, for in our judgment, our former position must be maintained for another reason. Even the preferred creditor is entitled to enforce the composition agreement: Glenn on Liquidation §101. Such an arrangement is a type of accord and satisfaction, and the rule that an executory accord is no defense to the debtor applies. In the instant case, Mrs. Aarons never received her designated share under the composition agreement. Thus, it cannot operate to bar her recovery of the original claim. See Kamber v. Becker, 27 Pa. Superior Ct. 266 (1905), wherein it was held that an affidavit of defense to be sufficient must aver not only execution of the agreement but also payment to plaintiff of the amount therein agreed upon.
The petition is accordingly dismissed.