Court Opinion

ID: 6515422
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:26:09.833608+00
Date Added: 2024-06-11T15:55:00.409089
License: Public Domain

STONE, C. J.
The reporter will set out the substance of those parts of the agreement of extension, finally agreed upon between the Montgomery Carriage Works, a partnership composed of three members, and its creditors which is not *629made intelligible in this opinion. It bears date in February, 1892, and, it is averred, was agreed to by all the creditors of the company. Those who unite in filing this bill, although not of the number who participated actively in the meeting at which the agreement was entered into, were and still are creditors of the company, and they assented to, and accepted the terms agreed on. In the agreed terms of extension the company’s debts were divided into four equal parts, to bear interest at six per cent.; the first instalment to mature January 1, 1893, and the remaining instalments at intervals of six months afterward; the interest to be paid annually. The last instalment to mature July 1, 1894. Notes to be executed for the several instalments, as per the agreed terms of extension. The Montgomery Carriage Works bound itself to contract no other debts pending the term of the extension.
The bill then avers that on December 31, 1892, the day preceding the maturity of the' first installment of its extended indebtedness as agreed on, The Montgomery Carriage Works executed a bill of absolute sale of its entire property and effects to the Bank of Montgomery and certain other named creditors, each of whom had agreed to said terms of extension, in payment of its said debts •to them, and thus stripped itself and the members composing the partnership of all means for the payment of its other debts. The debts due to complainants are wholly unpaid, and the Montgomery Carriage Works and its members are insolvent. The prayer of the bill is that the defendants, who thus received the effects of the Montgomery Carriage Works, be decreed to hold the same in trust for all the creditors alike, and be held to account for the effects so received to all the creditors pro rata who assented to the said extension; and there is a prayer for general relief. There was a demurrer to the bill assigning many grounds, all of which were overruled by the chancellor. From that ruling the present appeal is prosecuted.
Under the facts of this case if the averments of the bill be true, the agreement of February, 1892, between the Montgomery Carriage Works and its creditors has many of the controlling properties of a composition among creditors with their common debtor. Each made concessions. The creditors made liberal concessions in the matter of the time when their several demands should be due and collectible, and in the rate of interest to be paid. The debtor partnership bound itself to incur no new debts, until existing indebtedness should be paid off. Now, this was not simply an *630agreement, or series of agreements, between each creditor and the debtor. It had a broader scope. True, it was, in its obvious extent, an agreement bi-partite, between the debt- or on the one side, and the creditors on the other. It extends farther. By an irresistible implication it was an agreement among the assenting and acquiescing creditors to move as a unit and to share a common fate, at least until default should be made by the debtor. To hold otherwise would be to declare that the meeting of the creditors accomplished nothing, intended nothing.
In White v. Kuntz, 107 N. Y., 518—1 Amer. St. Rep. 886— the . co.urt, speaking of a composition by a debtor with creditors, said: Such an agreement, if entered into by a debtor with a number of his' creditors, each acting on the faith of the engagement of the others, will be binding upon them, for each in that case has the undertaking of the rest as a consideration for his own undertaking. Where creditors thus mutually agree with each other, the beneficial consideration to each creditor is the engagement of the rest to forbear. In Breck. v. Cole, 4 Sand., (N. Y.) 79, speaking of a composition by a debtor with his creditors, the court said: “Every composition deed is in its spirit, if not in its terms, an agreement between the creditors themselves, as well as as between them and the debtor.” In Good v. Oheesman, 2 Brn. & Ad. 328, an agreement of composition had been entered into between a debtor and his creditors, by which the debtor bound himself to pay two-thirds of his income, for the benefit of his creditors, the payments to be made to a trustee to be named by the creditors. They had failed to name the trustee. One of the creditors brought suit on his original demand, and the composition agreement was relied on in defense of the action. The court sustained the defense, holding, that the said agreement constituted a valid new contract between the creditors and the debtor, capable of being immediately enforced, and that the consideration to each creditor which made it binding on him was the forbearance of the other creditors. See also Legard v. Hodges, 1 Ves. jr. 477, where it was said by Lord Thurlow to be a universal maxim, “that wherever persons agree concerning any particular subject, that, in a court of equity, as against the party himself and any one claiming under him voluntarily, or with notice, raises a trust.” Of course to make such agreement binding there must be a-consideration; but mutual agreements to forbear on the part of the creditors, supplies the element of consideration as between them.
We hold that, at least until The Montgomery Carriage *631Works committed a default, each, assenting creditor was bound to take no legal step and to enter into no agreement, by which to secure to himself a preference or priority over other assenting creditors; and that the property and effects the defendants secured by the purchase of December 31, 1892, must inure to the equal, pro rata benefit of all the creditors who participated in the agreement, or assented to its terms. Of course, this opinion is pronounced on the postulate that the bill truly sets forth the transaction.
Affirmed.