Zoebisch v. Von Minden — 54 N.Y. Sup. Ct. 213

Majority

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CHARLES A. ZOEBISCH, Respondent, v. ELIZABETH J. VON MINDEN and REINHOLD VON MINDEN, Appellants.

Headnote

Composition deed —no moral obligation exists on the part of the debtor sufficient to support a promise to pay the balance of the debt — an agreement to prefer one creditor, made either before or after the execution of the deed, is void.

In September, 1877, tbe defendant, Reinhold Yon Minden, made an assignment for the benefit of his creditors to the plaintiff, to whom he was then indebted in the sum of $8,277.59; $2,500 thereof being due upon a bond and mortgage executed by the defendants to one Parshall, which was by him assigned to the plaintiff who also held four notes of Yon Minden for $625 each, and $777.59 being represented by notes and an open account for goods sold. After the' making of the assignment a composition deed was executed by the several creditors, including the plaintiff, by which they covenanted and agreed to accept, in full discharge and satisfaction of their several debts, notes of the assignee for thirty per cent of their respective claims, and thereafter a deed of release was executed by the creditors, including the plaintiff, releasing and forever discharging the said Yon Minden “-from all debts, claims, demands, specialities, covenants, etc , then existing against him in favor of the said creditors, or either of them.” The plaintiff, when signing the composition deed, wrote against his signature the sum "of $777.59,

Subsequently to the execution of the release there were business dealings between the plaintiff and Yon Minden, and in July, 1880, a settlement of the amount of the indebtedness of Yon Minden to him was adjusted at $1,752.58, this result being reached by treating the claim of $2,500 unpaid on the bond as still due..

Upon the trial of this action, brought to foreclose a mortgage for $1,500, given by the defendants upon this settlement to secure the payment of that amount of the said indebtedness, a judgment was entered in favor of the plaintiff.

Held, that it should be reversed.

That, even if Yon Minden and the plaintiff entered into an express agreement that the composition should not apply to $2,500 of the indebtedness, such an agreement, in view of the language of the composition deed, would have been void as being a fraud upon the other creditors.

The rule that the involuntary discharge of' a debtor, by operation of law, leaves such a moral obligation to pay the debt, as will sustain a subsequent promise to pay it, does not prevail in this State where the debtor is discharged by the voluntary act of the creditor.

Crans v. Hunter ( 28 N. Y., 390 ) and Stafford v. Bacon ( 1 Hill, 532 ) followed.

That an agreement to prefer one creditor, made after the signing of the composition, violates the spirit of the composition deed, and is a fraud upon the other signers thereof equally as much as if made before the signing thereof.

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Arpeal from a judgment in favor of the plaintiff entered upon the report of a referee.

In September, 1877, the defendant, Reinhold Yon Minden, made an assignment to the plaintiff for the benefit of his creditors. At this time the assignor was indebted to the assignee in the sum of $3,277.59; of this amount $2,500 was due upon a bond of the assignor to one James L. Parshall for $3,000, which bond was secured by a mortgage executed by both defendants, and which bond and mortgage had been duly assigned by Parshall to the plaintiff, and for which 'sum the plaintiff also held Reinhold Yon Minden’s four notes for ‘$625 each. The balance consisted of two notes and an open account for goods sold and delivered together amounting to $777.59. Soon after the making of the assignment a composition deed was executed by the several creditors of the assignor by which they covenanted and agreed to accept, in full discharge and satisfaction of the several debts and sums of money due to them from said assignor, his promissory notes at six, nine and twelve months for in the aggregate thirty per cent of their respective claims. This deed was signed hy the plaintiff, he writing against his signature the sum of $777.59. Subsequently a deed of release was executed by the creditors including the plaintiff, whereby in consideration of the compliance on the part of said Yon Minden with the terms of the composition above mentioned the said creditors “ remised, released and forever discharged the said Yon Minden from all debts, claims, demands, specialties, covenants, etc., then existing against him in favor of the said creditors or either of them.”

Subsequently to the execution of this release there were business dealings between Mr. Yon Minden and the plaintiff and prior to July, 1880, the settlement of this account had been a matter of dispute between the parties during which a statement was made by the plaintiff of his claim and submitted to Mr. Yon Minden, which claim amounted to $2,362.87. The first item in this statement was a charge of $2,500, the amount for which the plaintiff had held the Parshall mortgage as above stated. To this item Mr. Yon Minden made no objection, but other items were disputed by him and finally, about the middle of July, the amount of the indebtedness was adjusted at $1,752.53. For $1,500 of. this amount the hond and mortgage in suit were given, and for the balance Mr. Yon Minden

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gave his notes. The defendants for two and a half years paid the interest on this mortgage and then made default. Upon being, pressed for payment they promised and asked for time. This action to foreclose the mortgage was then begun, and the defendants answered that the same was without consideration and void. The referee before whom tbe cause was tried having found in favor of tbe plaintiff, from tbe judgment thereupon entered tbis appeal was taken.

M. M. Budlong, for tbe appellant.

I). M. Porter, for tbe respondents.

That tbe $2,500, which was secured by tbe Parshall mortgage^, was discharged by tbe composition deed was decided by tbis court upon a previous appeal in tbis action. It seems to have been-attempted to evade tbe force of that decision by showing that the-plaintiff, when be and tbe other creditors signed tbe composition-deed by which he and they agreed to receive from tbe debtor thirty cents on tbe dollar, “in full discharge and satisfaction of tbe several debts and sums of money that tbe said Eeinbold Yon Minden owes- and is indebted to us,” did not mean any such thing, but only intended to compromise about one-quarter of tbe indebtedness- due' to him from Mr. Yon Minden, and that Mr. Yon Minden also so' understood it. And that when tbe plaintiff, with tbe other creditors,, acknowledging a compliance upon tbe part of Mr. Yon Minden withtbe terms of tbe deed of composition, executed and delivered to him a release under seal whereby they released him from every kind of obbgation, be did not intend to release him from tbis indebtedness of $2,500, and that Mr. Yon Minden so understood it.

Tbe answer to tbis position seems to be entirely conclusive. No> agreement can be reformed unless it fails to express tbe understanding of all tbe parties to it. Tbe other creditors of Mr. Yon Minden were parties to tbis agreement, and there is no evidence that, when they signed tbe composition and release, and saw that tbe plaintiff; bad compromised and released all his indebtedness, that they knew that, although be said all, be only meant one-quarter. Even if Mr. Yon Minden and tbe plaintiff bad entered into an express

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agreement that the composition should not apply to $2,500 of the indebtedness, such an agreement, in view of the language of the composition deed, would have been void as being a fraud upon the other creditors. (Lawrence v. Clark, 36 N. Y., 128 .) The fact that the plaintiff only put $777.59 opposite his name in. the-composition deed does not alter his position, because the other creditors had the right to claim that this was a representation by; the plaintiff that the whole indebtedness of Yon IVIinden to him. amounted to only $777.59.

But it is sought to sustain the bond and mortgage in suit upon the ground that there was some sort of a moral obligation under the circumstances upon the part of Mr.. Yon IVIinden to pay this $2,500, and such being the fact a consideration for the giving of the bond’ and mortgage existed. It is true that it has been repeatedly held that the involuntary discharge- of a debtor (that is by operation of' law) leaves such a moral obligation to pay the debt as will sustain-' a subsequent promise to pay it. But a different rule prevails.in this; State where the debtor is discharged by the voluntary act of the creditor, as is recognized by the court in the- case of Crans v. Hunter ( 28 N. Y., 303 ) and cases there cited, and such seems to have been the law in this -State since the decision .of the case- of Stafford v. Bacon ( 1 Hill, 532 ).

The reason of the distinction between cases of involuntary and voluntary discharges seems to be obvious. In the former case the proceeding is for the purpose of devolving the whole of the debtor’s' property at once, as far .as it will go to the payment of his .debts. - and that thereby he may be discharged from all further liability,' The creditor, against his will, is prevented from keeping alive his claim against his debtor. In the case of a composition deed, it is by the voluntary act of the creditor that he releases the debtor, and . he acts under no compelling force to do that which he is unwilling to do. -The relation between the debtor and his creditors is one of confidence and -trust.. The .creditor relinquishes a part of his claim. for the purpose of enabling his debtor to go on in business. He -does so upon -the understanding that all the creditors are treated alike, and that one creditor has no advantage over another; and so . jealously does the law regard this understanding that all agreements .in violation of it between the debtor and any creditor are held to be-

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void. The composition deed represents to each creditor that all the others are willing, by the relinquishment of a part of their indebt edness, to allow the debtor to retain his property for the purpose of business ventures, and that such property, so far as the old debts are concerned, shall not be liable except as stated in the composition. This being the case, if an agreement made before the signing of the composition to prefer one creditor is a fraud upon the others, equally so is an agreement made afterwards. Such an agreement violates the spirit of the composition deed, and is a fraud upon the other signers thereof. By agreement of the creditors each has wiped out his claim as effectually as though it never had existed. The case of Dunham v. Griswold ( 100 N, Y., 226 ) does not militate against the views above expressed.

A claim which is a. fraud in law can never form a good consideration for any agreement. The giving of an obligation to pay the claim of the plaintiff was a fraud upon the other creditors of the defendant Mr. Yon Minden, who had signed his composition deed, and if such an obligation, if given in pursuance of an express promise, could no.t be enforced, there seems to be, no principle upon which it can stand, because it is given without such promise-having been made. The evidence in the case shows that at the time of the adjustment of the account the whole of the indebtedness due from Yon Minden to the plaintiff, except that arising upon the claim of $2,500, had been paid, and consequently nothing was due .from Yon Minden to the plaintiff at the time of the giving of this mortgage. ,

The judgment .appealed from .must be. reversed and a new trial granted, with costs -to appellant to abide .event.

Beady and Daniels, JJ,, concurred.

Judgment reversed,.new trial ordered, costs to appellant to abide eyent.