Bank of Commerce v. Hoeber

• Citation: 11 Mo.App. 475
• Parties: BANK OF COMMERCE, Respondent, v. GUSTAVUS HOEBER, Appellant.
• Decision Date: 28 February 1882
• Court: Court of Appeal of Missouri (US)

11 Mo.App. 475

BANK OF COMMERCE, Respondent,

v.GUSTAVUS HOEBER, Appellant.

St. Louis Court of Appeals, Missouri.

Feb. 28, 1882.

A composition agreement which one creditor, without the knowledge of the debtor or other creditors, is induced to sign by the promise of a third person to pay him an additional sum, is void.

APPEAL from the St. Louis Circuit Court, ADAMS, J.

Affirmed.

BROADHEAD, SLAYBACK & HAEUSSLER, for the appellant: The unauthorized interference of a stranger, without the knowledge or consent of the debtor, did not render the composition agreement void.-- Babcock v. Dill, 43 Barb. 577. The court below erred in assuming that the defendant was responsible for the unknown and unauthorized promise made by Dickson to Levy & Bro. The promise itself was a nullity. It was void.-- Lawrence v. Clark, 36 N. Y. 128; Carroll v. Shields, 4 E. D. Smith, 466.

ALBERT ARNSTEIN, for the respondent: The composition having been signed with a secret promise of preference, is fraudulent and void.-- Bank of Commerce v. Hoeber, 8 Mo. App. 171; Bastian v. Dreyer, 7 Mo. App. 332; Crandall v. Cochran, 3 N. Y. Superior Ct. 203; Hefter v. Caher, 73 Ill. 296; Page v. Bent, 2 Metc. 375; Frost v. Gage, 6 Allen, 50; Case v. Gerrish, 15 Peck, 50; Forsyth on Comp.^*27. The fact that the preference was given by a third person, and unknown to the debtor, does not relieve the composition of its fraudulent feature.-- Breck v. Cole, 4 Sandf. 83; Solinger v. Earle, 82 N. Y. 393; In re Whitney, 14 Nat. Bank. Reg. 1; Knight v. Hunt, 5 Bing. 432; Bradshaw v. Bradshaw, 6 Mee. & W. 29; In re Sawyer, 14 Nat. Bank. Reg. 241.

THOMPSON, J., delivered the opinion of the court.

The facts of this case, so far as need be stated, were as follows: In 1878, the defendant failed in business, and proposed to compound with his creditors at thirty-five cents in the dollar. He employed an attorney to visit his creditors and negotiate for this composition, empowering him not to offer more than thirty-five per cent. Among these creditors was the firm of James Levy & Bro., of Cincinnati, who refused to take less than fifty cents in the dollar. The plaintiff's attorney told them that he had no authority from his client to offer more than thirty-five cents, but that, in order to induce them to sign the composition agreement, he would give them his individual obligation in writing, to pay them an additional fifteen per cent. They agreed to this, and signed the agreement, by which all the creditors purported to release their respective demands against the defendant upon payment of thirty-five per cent thereof. The other creditors, among them the plaintiff, afterwards signed the agreement. The defendant paid thirty-five cents in the dollar to all his creditors, in pursuance of the terms of the agreement, and took the same form of release from each one. Four days after he had paid James Levy & Bro. the thirty-five per cent of his indebtedness to them, in pursuance of the composition agreement, a draft drawn by them upon his attorney, in pursuance of the agreement between them and the attorney, was paid by the latter. Treating the defendant as having proved what the circuit court refused to allow him to prove, it must be taken, for the purposes of this decision, that the defendant had no knowledge that his attorney had made this secret arrangement with James Levy & Bro., until after the composition agreement had been signed by all the creditors, and he had made payment to them in pursuance of its terms; that he never authorized the making of this secret agreement; that he repudiated it as soon as it came to his knowledge, and refused, and still refuses, to repay to his attorney the money paid by him under it. It must also be conceded, for the purposes of this decision, that, in effecting the composition settlement, the defendant's attorney was acting in pursuance of a special authority; that James Levy & Bro. had distinct notice of the limits of his authority; that in making this agreement with them for the payment of the additional fifteen per cent, he was acting outside the limits of his authority, as they well knew; that in so acting he was not acting as the defendant's agent, but was acting officiously, and that his act was no more binding upon the defendant than the act of a mere stranger in the premises would have been. It must also be conceded that the defendant is wholly innocent of practising any fraud or deception upon his creditors with reference to this matter.

After the plaintiffs had signed the composition agreement, had received from the defendant thirty-five per centum of what was due upon two notes of the defendant which they held, surrendering these notes to the defendant and giving him a release of the full indebtedness which they represented, it came to their knowledge that the defendant's attorney had given this secret bonus to James Levy & Bro. They thereupon brought the present action for the indebtedness represented by these notes above the thirty-five per cent paid under the composition agreement. The case was before this court at a former term (8 Mo. App. 171), and this court held that the action was well brought.

We have now to consider the question arising upon the facts developed in the evidence as already set out; and the question is, whether, upon these facts, there can be any recovery. In other words, the question is,--and we state it most strongly for the defendant, and concede all the conclusions of fact which we understand his counsel to claim,--whether a composition agreement between a debtor and all his creditors is rendered void by the fact that one of the creditors was induced to sign the agreement by the officious act of a third person in agreeing to pay him a sum of money in addition to that which he was to receive under the composition agreement, which agreement with the third person was concealed from the other creditors until after the composition agreement had been signed and the settlement made by it fully executed, and of which act of the officious intermeddler and the particular creditor the debtor was and is wholly innocent. We are of opinion that it is.

Ordinarily, an agreement between a creditor and his debtor, whereby the former agrees to accept a part of what is due him in payment of the whole, is an agreement without consideration, and will not estop the creditor from afterwards suing and recovering the unpaid balance. Cumber v. Wane, Strange, 426. An exception to this rule arises where a creditor agrees to accept a certain percentage of his debt in discharge of the whole, in consideration of all the other creditors of the debtor doing the same. Such an agreement is not merely an agreement between each creditor and the common debtor; it is also an agreement among all the creditors who sign the composition agreement. Solinger v. Earle, 82 N. Y. 393, 396; Sage v. Valentine, 23 Minn. 102; Breck v. Cole, 4 Sandf. S. C. 79, 83. The consideration which supports it is that each creditor gets the percentage of his debt, the security, or other benefit which is stipulated for on the face of the paper, and no more. Ibid.; 1 Smith's Ld. Cas. ^*443. Such an agreement requires the utmost good faith; and if any one of the creditors who signs it gets, as the price of signing it, a greater proportion of his debt, or a greater or better security, or any direct or collateral advantage which the others do not get, without the...