Gross v. Bibo

• Citation: 19 N.M. 495,145 P. 480
• Decision Date: 02 December 1914
• Docket Number: No. 1631.,1631.
• Court: Supreme Court of New Mexico
• Parties: GROSS, KELLY & CO.v.BIBO ET AL.

19 N.M. 495

145 P. 480

GROSS, KELLY & CO.

v.BIBO ET AL.

No. 1631.

Supreme Court of New Mexico.

Dec. 2, 1914.

Syllabus by the Court.

A transaction which is capable of being rescinded on the ground of fraud is to be treated as good until rescinded, and not as bad until confirmed; but such contract is not to be considered as rescinded only as of the date of the decree of the court setting the transaction aside, but as of the date of the unequivocal and open declaration of the injured party that he demands a rescission, followed, upon a refusal, by a prompt application to the courts.

A secret preference given to one of the creditors signing a composition agreement, in order to induce him to assent to the same, renders the composition agreement, as to the innocent creditors who sign the same, voidable only, and such contract continues in full force and effect until the fraud is discovered, and the election to rescind is exercised.

Consideration, like every other feature and element of a contract, is a matter of agreement, upon which the minds of the contracting parties must meet and agree.

Hence, where B.'s creditors signed a composition agreement, whereby they agreed to accept 35 per cent. of their claims against him in full settlement, but the signature of M., one of such creditors, was obtained by B.'s agreeing to give him secret preference of 15 per cent. and G., another of his creditors who had signed the agreement, upon being paid the 35 per cent. provided for, demanded of B. that he execute and deliver to him promissory notes for the 65 per cent., which was done, but G. at that time had no knowledge of the secret preference given M., and did not base his demand upon that fact, but such fact caused B. to execute the notes, because of his fear that G. would unearth the fraud, and all the creditors would attempt to avoid the composition, held, that the minds of the contracting parties did not meet and agree upon the consideration. Held, further, that while G., upon discovering the fraud, could avoid the transaction, and recover the balance of his claim, such fraud, when discovered, would not relate back to the execution of the notes, and supply a consideration which was not the consideration upon which the minds of the parties met and agreed.

After the voluntary release of a debt, an express promise does not revive it, nor does it form a sufficient consideration to support a new promise.

A naked agreement by one party not to engage in business in competition with another party is in contravention of public policy, and therefore void.

Where a contract in restraint of trade is subsidiary to the main purpose of disposing of an established business, or other legitimate object, and the restraint is no broader than is necessary to protect the good will of the business sold, the restraint is reasonable and the contract valid.

Additional Syllabus by Editorial Staff.

There is a clear distinction sometimes between the “motive” that may induce to entering into a contract and the “consideration” of the contract. Nothing is “consideration” that is not regarded as such by both parties. It is the price voluntarily paid for a promisor's undertaking. An expectation of results often leads to the formation of a contract, but neither the expectation nor the result is the cause or meritorious occasion requiring a mutual recompense in fact or in law.

Appeal from District Court, Bernalillo County; M. C. Mechem, Judge.

Action by Gross, Kelly & Co. against Simon Bibo and another. From judgment for defendants, plaintiff appeals. Affirmed.

After the voluntary release of a debt, an express promise does not revive it nor does it form a sufficient consideration to support a new promise.

This action was instituted in the court below by the appellant against the appellees, to recover on four promissory notes, dated April 2, 1908, aggregating $8,058.85, and due, respectively, on or before October 15, 1908, January 15, 1909, August 1, 1909, and January 1, 1910. The notes contained the ordinary 10 per cent. attorney's fee clause, and provided for interest at the rate of 6 per cent. per annum.

The defendants, by their answer, admitted the execution and delivery of the notes, and that the same had not been paid, but alleged that there was no consideration for any of said notes, and set up that on or about March, 6, 1908, the plaintiff, among other creditors, accepted and became a party to a creditors' composition agreement, whereby the creditors of the S. Bibo Mercantile Company, of which the defendant Simon Bibo was the owner and proprietor, agreed to accept a 35 per cent. cash compromise of their respective claims as a final settlement in full of the claims and amounts due to them respectively from the S. Bibo Mercantile Company and the said defendant Simon Bibo, and they filed with their answer a copy of the composition agreement. They further alleged that the remaining creditors of the S. Bibo Mercantile Company and the defendant Simon Bibo accepted said creditors' composition agreement a short time subsequent to March 6, 1908, and that, in pursuance of said creditors' composition agreement, said 35 per cent. of their respective claims was paid to all creditors, in behalf of said S. Bibo Mercantile Company and Simon Bibo, including the plaintiff; that said composition agreement was executed; and that all of said creditors, including the plaintiff, released their respective claims against the S. Bibo Mercantile Company and the defendant Simon Bibo. They further set up that the amount of their original indebtedness to the plaintiff was $12,398.23; that, in pursuance of the said composition agreement, they paid the plaintiff $4,339.38; and that there remained unpaid to the plaintiff 65 per cent. of the original indebtedness, amounting to $8,058.85, and alleged:

“That the taking, obtaining, and securing of these notes was an attempt upon the part of said plaintiff to secure a fraudulent preference over the other creditors after said composition agreement had been accepted by all the creditors, and, upon advice of counsel, that such taking, obtaining, and securing was in contravention of public policy.”

Plaintiff, by reply, denied that the notes were executed without consideration, and alleged that they were made, executed, and delivered for a good and valuable consideration received by the defendants at and before the making, execution, and delivery thereof; admitted that the plaintiff became a party to and accepted the composition agreement; denied that, in pursuance of said composition agreement, 35 per cent. of the respective claims was paid to all creditors of the S. Bibo Mercantile Company, but, on the contrary, alleged that the S. Bibo Mercantile Company paid to the First National Bank of Albuquerque, one of the creditors, its claim in full, notwithstanding the said composition agreement, and as an inducement to said First National Bank to sign said composition agreement, all without the knowledge of the other creditors, etc.; that at the time of the making, execution, and delivery of the said promissory notes by the defendants to the plaintiff, the said composition agreement was, and was well known by the defendants to be, voidable at the election of the plaintiff because of the preference before that time agreed to be given by the defendants to the said First National Bank of Albuquerque.

The case was tried to a jury, and plaintiff failed to establish the allegations as to the secret preference of the First National Bank of Albuquerque. The evidence, however, developed the fact that the McIntosh Hardware Company had been paid 15 per cent. more than the 35 per cent. agreed upon in the composition agreement. Whether such payment was a secret preference was a disputed question. The evidence for the defendants was to the effect that it was agreed by the other creditors, including the plaintiff, that defendants should have the right to pay some of the small creditors more than 35 per cent. of their claims to effect a settlement, if necessary, and that the payment in question was made pursuant to said agreement. Plaintiff, on the other hand, offered proof to show the contrary. But it was clearly established that the plaintiff had no knowledge of the alleged secret preference until the fact was developed upon the trial of the cause, whereupon plaintiff asked and was granted leave to file a trial amendment setting up such facts. Later during the trial, upon motion of the defendants, the paragraph of the reply setting up the alleged secret preference of the McIntosh Hardware Company was stricken out by the court, upon the theory that such secret preference, being unknown to the plaintiff at the time the notes were executed, would not furnish or supply a valid consideration for the notes.

The evidence offered on behalf of the defendants, briefly summarized, and viewed in the aspect most favorable to plaintiff, established the following facts: All the creditors, including plaintiff, had signed a composition agreement, agreeing to accept 35 per cent. of their claim in full settlement, except McIntosh Hardware Company, who refused to sign unless defendant agreed to pay it 15 per cent. additional, which defendants agreed to do, and did, but this fact was unknown to plaintiff, and was only developed upon the trial of the cause, as stated. Simon Bibo, on April 2, 1908, called at the office of plaintiff, and handed George Arnot, plaintiff's representative, a check for 35 per cent. of its claim, pursuant to the composition agreement which it had signed. Arnot refused to give him a receipt, and said that if he would not sign the notes for the balance they would open the whole case again; that he signed the notes without knowing what he was doing. There was other evidence to the same effect, but it is not material and will not be stated. There was also evidence tending to show that the creditors had authorized Bibo to pay...