Salling Wiping Cloth Co., Inc. v. Sewell, Inc.

• Decision Date: 17 August 1982
• Docket Number: No. 14950,14950
• Citation: 419 So.2d 112
• Parties: SALLING WIPING CLOTH CO., INC., Plaintiff-Appellant, v. SEWELL, INC., et al., Defendants-Appellees.
• Court: Court of Appeal of Louisiana — District of US

Page 112

419 So.2d 112

SALLING WIPING CLOTH CO., INC., Plaintiff-Appellant, v. SEWELL, INC., et al., Defendants-Appellees.

No. 14950.

Court of Appeal of Louisiana Second Circuit.

Aug. 17, 1982.

Egan, Cook & Titone by Reuben W. Egan, Shreveport, for plaintiff-appellant.

Cook, Yancey, King & Galloway by Bernard S. Johnson, Shreveport, for defendants-appellees.

Before MARVIN, SEXTON and NORRIS, JJ.

SEXTON, Judge.

In this suit to enforce the acceleration provision of a lease taken by the defendant, Sewell, Inc., the performance of which was guaranteed personally by the defendant Sarrah Y. Loggins, the defendants filed a peremptory exception asserting compromise. This exception was referred to the merits. Subsequent to trial that exception was sustained and the plaintiff now appeals. The judgment of the trial court is affirmed for the reasons set out hereinafter.

On or about July 1, 1980, defendant, Sewell, Inc., leased from plaintiff, Salling Wiping Cloth, Inc., certain premises in Bossier Parish for a period of five years. The amount of payment due monthly was specified in the contract. Defendant-lessee's performance on the terms of the lease was guaranteed by Sarrah Y. Loggins, mother of the corporation's sole stockholder, Jeffrey Haughton.

On the same date as the lease, Salling sold to Sewell all of the accounts receivable, processing equipment, a truck and stock in trade in a $30,000 credit sale. A note and chattel mortgage for the purchase price was taken. Sarrah Y. Loggins was endorser of the note.

Payments were made on July 1, 1980, through February 13, 1981. Defendant then became delinquent with its rental payments, causing plaintiff to issue a written notice that defendant should pay the rent due. No payments were forthcoming and plaintiff instituted this action on July 13, 1981, to accelerate payments as provided for in the lease. Plaintiff alleges that the unpaid rent is $33,450. Plaintiff also claims interest of 8% per annum from May 3, 1981, and attorney fees as called for in the lease.

On May 2, 1981, prior to suit, as a result of defendant Sewell's inability to pay rentals and the resulting threat of court action from the plaintiff, a "Settlement Agreement" was entered into. By the terms of this agreement Sewell's assets were to be transferred to a third party, Johnny Byrd, and all proceeds of that sale plus other sums were to be paid to the plaintiff in exchange for his cancellation of the lease between defendant and itself.

Also under the terms of the Settlement Agreement, upon full payment of $21,000 by Sewell to Salling, Salling was to return to Sewell the July 1, 1980, promissory note in the amount of $30,000 marked paid in full and cancel the chattel mortgage of the same date which secured the note. Further, upon Sewell's payment of $1,750 for past due rent and current rent through May 1981, Salling was to cancel the July 1, 1980, lease to Sewell.

The terms of payment of the $21,000 were: $5,000 upon execution of the Settlement Agreement, and $16,000 upon final payment of the purchase price of Sewell's assets by Byrd (which contract of sale was recognized in the Settlement Agreement). Additionally, Sewell was to transfer to Salling its open accounts, pay its outstanding debts, and convey to Salling a 1977 Chevrolet van.

Pursuant to the terms of the Settlement Agreement, $5,000 was timely paid on May 3, 1981. The cash sale of Sewell's assets amounted to $13,327.40. This amount was immediately transferred to the plaintiff upon receipt by defendant. Left outstanding was payment of the balance of the $16,000 amounting to $2,672.60, plus payment of the outstanding debts incurred by Sewell, which the Settlement Agreement called for to be paid before June 1, 1981.

On June 1, 1981, Mrs. Loggins presented plaintiff's attorney with a personal check in the amount of $5,911.19, representing the balance of the $16,000 and other sums called for. Mrs. Loggins requested that the check not be presented for payment until 3:00 p.m. that day, since she then had insufficient funds in her account to cover the check. However by 3:00 p.m. she assured the plaintiff's attorney that sufficient funds would be transferred. Prior to 3:00 p.m. on June 1, 1981, the plaintiff's attorney informed Mrs. Loggins that the check she presented was unacceptable due to an additional clause contained on the rear of the check. This clause stated:

"This check constitutes payment in full to Salling Wiping Cloth Co. Inc. for Sewell, Inc. for all lease payments, accounts payable, note payments and hereby releases Sewell and Thomas Jeffrey HAUGHTON and Sarrah Y. Loggins and their successors and assigns from any and all claims for detriment, injuries and damages of whatsoever nature and character, which heretofore sustained or may hereafter sustain and fully relieves the aforesaid of any obligation whatsoever in connection herewith."

No money was transferred by Mrs. Loggins to cover the check, but the check was never presented for payment. Her banker testified that had the check been presented it would have been paid by the bank.

Plaintiff did not present the check because of the above clause, believing it varied the terms of the settlement agreement, also because of concern over unknown outstanding debts of Sewell. Thereafter this suit was filed asserting the original lease, to which defendants filed the previously mentioned exception.

The trial court found that the terms of the settlement or compromise agreement had been substantially complied with and, having referred the peremptory exception to the merits, sustained that exception after the trial on the merits.

The defense of compromise may properly be raised by the peremptory exception of res judicata. Bielkiewicz v. Rudisill, 201 So.2d 136 (La. App. 3d Cir. 1967) and Ditch v. Finkelstein, 399 So.2d 1216 (La. App. 1st Cir. 1981). We note that the exception in question here, though not styled as an exception of res judicata, is styled as a peremptory exception and adequately pleads the issue of compromise. Any defect in the label is of no significance. LSA-C.C.P. Art. 854 and Tschirge v. Land-O-Lakes, 98 So.2d 270 (La. App. 1st Cir. 1957).

LSA-C.C. Art. 3071 provides the definition of "compromise" in Louisiana. A compromise is an agreement made for the purpose of preventing or ending a lawsuit in which two or more persons "adjust their differences by mutual consent." As LSA-C.C. Art. 3071 further provides, the contract of compromise is preferred by the parties to the hope of gaining, balanced by the danger of losing. The contract of compromise must be reduced to writing or recited in open court, and of course a contract of compromise, like any other conventional obligation under the Civil Code, requires consent and capacity. Other crucial codal provisions stipulate that compromises "regulate only the differences which appear clearly to be comprehended in them," ¹ and that compromises have the legal efficacy of judgments, possessing as they do, "a force equal to the authority of things adjudged." ²

Given the Code's abstract and functional definition of "compromise" our task is to determine whether the legal requirements of a valid compromise have been met in this case, and the scope of such a compromise if it has legal existence. The record clearly demonstrates that there was an agreement confected in this case for the purpose of forestalling potential litigation. The legal requirement of mutual concessions and sacrifice or reciprocal consideration--in more precise civilian terminology, cause --is embodied in the codal terminology that the parties prefer the contract of compromise "to the hope of gaining, balanced by the danger of losing." ³ This requirement of reciprocal consideration is inherently present here. The plaintiff preferred reasonably immediate payment under the terms of the compromise obligation to the hope of recovering all outstanding amounts owed him when that hope was evaluated in light of the defendant's potential insolvency. The defendant obviously preferred the reduced terms of the compromise to the hope of winning a potential lawsuit when that hope was weighed against the danger of being adjudged liable for the entire amount. The compromise at issue here has been reduced to writing, and the record contains no allegations of failure of consent or capacity. With respect to the provision of LSA-C.C. Art. 3073 that compromises comprehend only those matters which the parties intend to be therein resolved, it appears that the instant compromise is all-inclusive since, by its very terms, it extends to "all claims presently existing among [the parties]."

As the foregoing discussion indicates, the codal requirements of a compromise have basically been satisfied, and there is little question as to the scope of the instant agreement. The next issue here concerns the question of whether this agreement has been employed by the parties to "adjust their differences." ⁴ Several courts have interpreted this clause to mean that a valid compromise does not exist unless there is a dispute as to the amount owed. Green v. National Life & Accident Ins. Co., 183 So. 604 (La. App. Orl. App. 1938); Breeland v. Kenner, 174 So. 678 (La. App. Orl. App. 1937); Aronson v. Pailet, 173 So. 545 (La. App. Orl. App. 1937); Cruze v. Life Ins. Co. of Va., 184 So. 735, rehearing denied 185 So. 492 (La. App. Orl. App. 1938). See also, Litvinoff, Civil Law Treatise, §§ 390 and 392 (1969).

But although the classic view is that there must be a controversy as to the amount in dispute in order for there to be a valid compromise, our research has revealed a number of instances in which our courts have upheld the validity of compromise agreements--even though there was no dispute as to the amount owed. In Oil Purchasers, Inc., v. Keuhling, 334 So.2d 420 (La. 1975), the Supreme Court upheld an agreement between an attorney and his heir which reduced the contingent fee of the attorney...