Matheson v. Wharton — 69 N.Y. St. Rep. 829

Majority

p. 829

Adam S Matheson et al., as Receivers, etc., Resp’t, v. Clifton Wharton, Jr., as Assignee, etc., et al., App’lts.

(Supreme Court, General Term, First Department,

Filed October 18, 1895.)

Headnote

Contract—Consideration.

Where an agreement between the maker and payee of a note that the payee would procure renewals for a certain period, is the inducement on the maker’s part for assigning accounts to him, to secure the payment of such note, and not a mere incident to the extension of time, the failure of the payee to procure renewals according to the agreement bars his right to have applied to the note any part of the assigned accounts.

Appeal from a judgment, entered in favor of plaintiffs.

Alfred JaretzJci, for app’lt Wharton ; James McKeen, for app’lt National Tube Works Co.; Edward J. Nathan, for resp’ts.

Prior to June 30, 1893, Jacob Jamer delivered to the National Tube Works Company, for value, several promissory notes, aggregating $10,820.06, and to the American Tube & Iron Company notes aggregating $23,870.85. All of these notes had been discounted, and were outstanding in the hand of third parties, on the date above mentioned. Jamer, finding that it would be inconvenient, if not impossible, for him to meet the notes at maturity, so stated to the National Tube Works Company and the American Tube & Iron Company, and proposed an ex ten

p. 830

sion of time, by which twenty-five per cent, of the indebtedness-represented by the notes should be paid in six months, twenty-rive per cent, in nine months, twenty-five per cent, in twelve months, and the balance in fifteen months; and to secure such payment he proposed an assignment of accounts which he held against certain parties. The proposition was accepted, and a tripartite agreement was entered into, in which Jamer was designated as the party of the first part, the National Tube Works Company party of the second part, and the American Tube & Iron Company party of the third part. It fixed the time of payment as he had proposed, and stated the method by which the extension was to be accomplished, which should be a renewal of the notes outstanding by the parties of the second and third parts so as to conform with such extension. On the part of Jamer, it was agreed to pay the amount of the notes in four installments, at the several periods agreed upon, and to secure such payment Jamer assigned by the agreement certain accounts. The right to anticipate the payment of any of the installments was reserved to Jamer, the parties of the second and third parts agreeing that, upon the payment of any installment, they would reassign to him a proportionate amount of the accounts assigned under the agreement, and that, upon payment of all of the installments, they would reassign all of the accounts. The party of the second part the National Tube Works Company, made performance of its part of the contract, and is entitled to all the benefits secured to it by the- agreement. The American Tube & Iron Company passed into the hands of a receiver on the 27th-day of July, 1893, and among the notes maturing immediateljq which it had agreed to renew, was one for $3,500 which became due July 28th, another for $1,739.80 which matured July 29th, and another for $829.50 which matured July 30th. These notes were not renewed, as by the agreement it was provided that they should be, although Jamer and his counsel urged upon the receivers the importance of their renewal. Instead, they were protested,' and Jamer on the 31st day of July, three days after the first note was protested, was compelléd to make a general assignment for the benefit of his creditors. While the agreement conferred upon the parties of the second and third parts the right to collect the accounts transferred by it, they did not, in fact, do so, but permitted Jamer to collect them, and after his assignment his assignee went on with their collection, the result being that, at the time of the commencement of this suit, there was in the hands of Jamer’s assignee the sum of $12,380.57, which had been collected from the assigned accounts. The plaintiff demanded from the assignee such a proportion of this sum as the amount of notes upon which it was the indorser bore to the amount of the notes upon which the National Tube Works Company was the indorser. If it had made performance of its contract, as did the party of the second part, Jamer’s assignee would have been without excuse in failing to comply with its demand. As it had not, he insisted that plaintiff was not entitled to any portion of the assigned accounts. Thereupon this suit was brought, upon the equity side

p. 831

of the court, to compel the assignee to pay over to the plaintiff that part of the proceeds claimed by it.

The learned referee decided that the plaintiff did not comply with all the provisions of the contract, in that he failed to renew the notes, to which we have referred, as they matured, but held that such omission did not annul the provisions of the contract assigning the accounts, or divest the American Tube & Iron Company of its interest in such accounts. This presents the only question which we shall consider, as we approve of the views of the referee in all other respects. The ground upon which he based his decision, that the failure of performance on the part of plaintiff did not have the effect to deprive it of the right to its full share of the proceeds of the assigned accounts, was that the contract, when assigned, was completely executed on Jamer’s part, and partly executed and partly to be executed on the part of the plaintiff and the other party to the contract. That the contract was one of mutual promises, each promise being the consideration for the other, and, therefore, the promise, not the performance of it, constituted the consideration. In support of his position he cited Philpot v. Gruninger, 14 Wall. 570 , and Boone v. Eyre, 1 H. Bl. 273.

It may be said, if he is right in his interpretation of the contract, then the cases cited furnish support for the legal conclusion reached. But the facts of those cases, as we read them, do not furnish any assistance in determinining whether this contract should be treated as executory, or as one' executed by one party and partly executed and partly to be executed by the other parties, at the moment of its execution. A remark of Foote, J. in Grant v. Johnson, 5 N. Y. 247 , seems to apply with such force to these, as well as to other cases to which our attention has been called, that we quote it:

“ So many decisions have been made on the vexed question of what are, and what are not, dependent covenants, and so many of them are irreconcilable, that they rather perl ex than aid the judgment in determinining a given case.”

The opinion in Boone v. Eyre, was written by Lord Manseield, and Pollock, in his work on Contracts, says:

“ From Lord Mansfield’s time to the present, attempts have been made to lay down rules for determining, in the absence of expressed provisions or other clear indications of intent, the relation of one party’s obligation to the other, as regards the order of performance of mutual promises, and to the extent to which either is bound to accept performance of part, notwithstanding failure to perform other parts. In the earlier decisions, the court inclined to treat the several terms of a contract as separate and independent promises, paying little regard to the effect which default in some or one of them might produce in defeating the purpose of the contract as a whole. At this day, the tendency is the other way. The court looks to the purpose aud effect of the contract as a whole, as a guide to the probable intention of the parties, _and the presumption, if any there be, is that breach or default in

p. 832

any material term of a contract between men of business amounts to default in the whole.”

And again, at page 249, that author says:

“ But, when there is a contract made by mutual promises, we may have to inquire whether, in addition to each promise or set of promises being the consideration for the other, the performance thereof on the one side is not a condition, precedent or concurrent, of the right to claim performance of the other. There is no logical reason why it should not be so, or why express words should be required to manifest an intention that it should. Bach party’s promise is the consideration for the promise of the other, not for the performance which is due by reason of the promise. What are the terms and conditions of the duty created bv the promise is another matter.”

In considering the tests which may be applied, he says at page 251: _

_ “ Gan it be said that the promisee gets what he bargained for with somQ shortcoming for which damages will compensate him. Or is the point of failure so vital that his expectation is in substance defeated. ”

The logical and necessary result of the position taken by the referee is that if the plaintiff had failed to renew any of the notes described in the contract, yet it can recover, because, as he asserts, the contract was executed by one party, and partly executed by the others the moment it was signed. But in such case, clearly, Jainer’s expectations would have been defeated, not only in substance, but entirely. What he was aiming at, as appears from every feature of the contract, was to procure an extension of time within which to pay thirty odd thousand dollars, which the notes ■outstanding represented. To accomplish that result, he was willing to assign certain accounts which he held against other parties. There is no hint of any other intention in this contract. It was not provided that the avails of these accounts should be applied in payment of these notes outstanding. There was no authority to make any application whatever, until six months thereafter, when the first installment should become due, and then it was to be devoted to the payment of one-fourth of his obligations, which would then be represented by renewal notes. Jamer was attempting to protect his credit through a period of great financial depression, and that could only be accomplished by securing his notes from protest, and therefore the parties of the second and third parts were required to renew the notes as they should mature. This they promised to do, in order to secure the collateral which be offered them as an inducement It is true that the word collateral was not used, but that it was intended as collateral security for the faithful performance of his promises to pay the sum which his notes represented in four equal installments in six, nine, twelve, and fifteen months, is apparent. The clause following the promise to pay begins with the words:

“ To secure the prompt and punctual payment of said sums of money, and each installment thereof, at the time above provided, the party of the first part does hereby assign.”

p. 833

And in the sixth clause :

“ It is further provided that, as each installment of the indebtedness hereinabove recited is paid off, the parties of the second and third parts will reassign to the party of the first part a proportionate amount of the accounts assigned to and held up by them under this agreement, and that upon payment of all of the installments hereinabove provided for, and of any and all interest and charges that may have accrued thereon, they will reassign all of the accounts enumerated in said schedule A, or such others as may have been submitted therefor to the party of the first part.”

The conduct of the parties was in harmony with the apparent language of the contract. The parties of the second and third parts did not undertake the collection of the accounts. Jamer ■collected such as were collected, and the proceeds resulting from his efforts in that direction occasions this suit.

If the legal interpretation put upon this contract by the referee be sound, then it necessarily follows that, immediately upon its being signed, if the parties of the second and third parts had neglected or refused to renew any of the notes referred to in it, and had permitted them to mature and be protested against Jamer while in the band of third parties, nevertheless, the parties of the second aud third parts would have been entitled to the collateral to protect them as against their liability as indorsers on the notes. Such, certainly, was not the intention of the - parties, and the contract does not so indicate, from whatever point of view it may be examined.

The promise to renew the notes from time to time, so that Jamer should not be called upon to pay any of them under six months, and others for periods as far away as fifteen months, was not merely incidental and collateral. It was the main inducement on Jamer’s part for providing the collateral. The object was to secure himself against the threatening impairment of his credit. He apprehended financial ruin in the event his paper should be dishonored, and thirty days later, when, through plaintiff’s failure to perform its contract, his paper went to protest, his apprehensions were proved to be well founded.

Respondent’s argument is that Jamer covenanted to pay his just debts, and, as security, he assigned certain accounts to his two creditors, in consideration whereof they extended the time of payment, and agreed to renew certain notes as the same matured. Thus the contract and consideration was wholly executed, except as to the renewal of the notes, which could only be done in the future, and was a mere incident to the extension. But this position does not correctly present the facts. The parties of the second and third parts were not then his creditors. All of the notes were then in the hands of third parties. As they bore the indorsement of the second and third parties, they were threatened witli liability thereon should Jamer fail to pay. To protect themselves, they consented to assume the burden of renewing the notes and thus extending the time of payment for the time specified in the contract. The contract contains a phrase that the parties of the second and third parts “ agree to extend and do hereby ex

p. 834

tend ” the time of payment of the said indebtedness, but that phrase did not effect an extension, as there was no indebtedness due to them. Instead, it was due to third parties who held the notes. While these words were in praesenii, they should be construed in the future tense. Otherwise, they are meaningless, for there was nothing for them to operate on. Without a renewal of the notes there could be no extension of time, and therefore the contention that the paragraph relating to the extension constituted the consideration for the contract, and the renewals were a mere incident to it, is absurd. The plan of the contract was to procure such renewals of these notes as that one-fourth should be paid at each period of six, nine, twelve and fifteen months. In giving expression to the agreement of the parties in this respect, the following language was used-:

“ The parties of the second and third parts agree to extend, and do hereby extend, the time of the payment of said indebtedness so that one-fourth of the entire amount due each of the parties of the second and third parts shall be due and payable in six months from date, another one-fourth part in nine months from date, another one-fourth part in twelve months from date, and the remainder in fifteen months from date. And said parties of the second and third parts agree to renew the notes heretofore given by the party of the first part as the same mature, so as to conform with such extension.”

The use of the words, “ do hereby extend,” furnishes the basis for the argument made by the respondent, that by the agreement the parties of the second and third parts extended,—not promised to extend, but actually did extend,—the time of payment. But, as we have already seen, they did not extend the time for «payment, for their was no indebtedness due them. The notes were not in their possession or under their control, and by that agreement they could not affect Jamer’s liability thereon, to the parties who held them. Their promises to renew the notes, contained in the latter part of the clause, develops the plan by which they untook to insure Jamer against the notes becoming dishonored within the period which they had promised he should have to pay the amounts secured by them.

Having in mind the situation of the parties, the object which they intended to accomplish, and the general scheme of the contract, the only reasonable construction which can be given to the -opening paragraph of the provision which we have quoted is that by it the parties of the second and third parts agreed to extend the time of payment for the periods therein named, the promise to be effectuated by renewal of the several notes as they should mature so as to conform with such extension. Such a construction leaves no basis whatever for the claim that the renewal of the notes was a mere incident to the extension. If we are right in the views expressed, it follows that the plaintiff, having failed to perform its contract in a substantial and important respect, cannot recover.

The judgment should be reversed, and a new trial ordered, with costs to the appellants.

All concur.

Cases cited

Philpot v. Gruninger 14 Wall. 570 SCOTUS p. 831
Grant v. Johnson 5 N. Y. 247 N.Y. p. 831