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effect. In Bell v. Pitman the court, after affirming the rule that an accord to be effectual as a bar must be executed, goes on to say:
"While this is true, there is a well-sustained exception to the rule, which is thus stated in 1 A. & E. Enc. of Law and Practice, 642, as follows: 'It is an apparent, rather than a real, exception to the rule requiring the accord to be executed, that where a promise or new contract founded upon a new consideration is itself accepted in satisfaction of the contract or claim, there the accord and satisfaction is good without performance. But it must appear that the plaintiff accepted the agreement alone in satisfaction and discharge of his cause of action.' Thus in Peace v. Stennet, 4 J. J. Marsh 499, Peace pleaded that he had executed a note to Stennet, which Stennet had accepted in satisfaction of the claim. It was held that the plea was sufficient, although the note had not been paid. In Tomlin v. McChord, 6 J. J. Marsh. 1, McChord sold a tract of land to Tomlin, and he executed to McChord a note for $200, to be paid on certain conditions. When sued on this note, Tomlin pleaded that subsequently they had made an agreement by which he had executed a note to McChord, payable on other conditions, in compromise of the note sued on. It was held that the plea was good. In Price v. Price, 111 Ky. 771, 64 S. W. 746, 66 S. W. 529, 23 Ky. Law Rep. 1086, 1911, the plaintiff held a note on the defendant for $4,000, and, when sued on the note, he pleaded that it had been agreed between them in writing that he should pay the plaintiff $62.50 every three months during his natural life, and that this should be in full of the $4,000 note. The defense was sustained."
In considering this modification of the rule it is well to remember an intimation in a late case in the New York Court of Appeals to the effect that the new agreement, in order to constitute a bar of itself and without performance, must contain the recognition of some disputed right of the person who is endeavoring to recover on the original cause of action.
All of the difficulties and technicalities which the courts have thrown around this subject make it necessary for one not a lawyer who wishes to be on the safe side not to rest until everything agreed to be done by way of compromise is actually performed down to the minutest detail at the earliest possible moment.
See Decision No. 1389.
Accord and Satisfaction: Check "In Full Settlement."
At page 17a of the October, 1910, Quarterly, we discussed the effect of the retention of a check marked "In full settlement." We there stated that generally such retention acted as a settlement and the creditor could not claim that a larger amount was due. The law does not lay this down absolutely, but merely states this to be the intention of the parties. Hence, as we stated in discussing Decision No. 1298,
anything which clearly shows that the intention of the parties was that the check should not operate as a settlement will control and prevent the operation of the general rule. While this is true, nevertheless it is extremely unsafe for any one to retain a check marked as above described unless he be satisfied to accept it as a settlement in full.
This will become the more apparent from a consideration of the facts in Cunningham Commission Co. v. Rauch-Darragh Grain Co., Decision No. 1390. In that case defendants, after some discussion, sent to plaintiffs a check for $250.73, marked on its face as in full settlement of all defendant's indebtedness to plaintiff.
Immediately upon the receipt of the check the plaintiff wrote to the defendant this letter:
"Little Rock, Ark., October 25, 1905. Rauch-Darragh Grain Co., City - Gentlemen: Your check for $250.73 received and applied to your credit. We wish to advise, however, that we do not accept same as settlement, as there are a number of items that you will not agree to. We will check your statement within the next few days and advise you concerning same. Yours, etc., Cunningham Commission. Company.'
Defendant never answered this letter.
Despite this, however, it was held that the plaintiff was bound by the acceptance and retention of the check so marked and could not maintain any suit for any excess of indebtedness. The court said:
"The check contained the statement upon its face that it was in full payment, and the plaintiff testified that immediately on its reciept the above letter was written, which shows that the plaintiff understood that the check was sent and tendered upon condition that it should be received in full payment. The plaintiff with this knowledge retained and cashed the check. This, we think, amounted to an accord and satisfaction. The case, we think, is ruled by the case of Barham v. Bank of Delight, 126 S. W. 394, 27 L. R. A. (N. S.) 439. In that case we hold that, when a debtor sends a check to his creditor to apply upon a disputed claim bearing on its face a statement that it is a payment in full, the retention and collection of the check by the creditor renders it an accord and satisfaction of the debt.
"It is urged by counsel for plaintiff that there was no accord and satisfaction in this case because the plaintiff immediately on receipt of the check wrote the above letter to defendant, in which it stated that it did not accept the same as a settlement of the indebtedness. But in the same letter it is stated that the check was received and applied to the credit of the account. It thus indicated that it had appropriated the check, and would not in any event return same to defendant.
"It is urged by plaintiff that it was incumbent upon defendant to answer this letter, and state that it did not agree to permit the check to be only applied as a credit upon the indebtedness, if it did not consent thereto. But we do not think that a reply was necessary. The
plain import of the language of this letter indicated that the plaintiff had received and retained 'the check and had appropriated it on the indebtedness. There was nothing in the letter which indicated that they would return the check if it was so desired by the efendant. If the plaintiff had intended to return the check in the event the defendant had not desired to consent to it being placed only as a credit on the account, then it should have stated so in apt language. Its conduct shows that this was not its purpose, for, in addition to stating in the letter that it had applied the check to the credit of the account, . it did actually cost same. But, as stated in the case of Barham v. Bank of delight, supra: If an offer of payment was made upon condition, and the plaintiffs so understood it, there was but one of two courses open to them: Either to decline the offer and return the check, or to accept it with the condition attached. The moment plaintiffs indorsed the check and collected it, knowing that it was offered only upon a condition, they thereby agreed to the condition and were estopped from denying such agreement. It was then that the minds of the parties met, and the contract of accord and satisfaction was complete in law.' The chancellor made findings of fact as above indicated, and we think that they were well supported by the testimony adduced upon the trial of the case."
See Decision No. 1390.
Under the Federal Bankruptcy Act any preference made by a bankrupt within four months prior to the filing of the petition for adjudication as a bankrupt is voidable and may be set aside. As we have hitherto seen, the courts have interpreted very strictly the requisites for such a voidable preference. It must be made while the maker is insolvent, it must be intended by him to constitute a preference, the receiver of the preference at the time of receiving must know that a preference is intended or the circumstances must be such that a reasonable man would suspect such intent, and, finally, there must actually be a preference, i. e., a payment in whole or in part to one creditor to the endangering of other creditors of the same class. These requisites are restated in the late case of In re Sayed, Decision No. 1391, where it is said:
"It is elementary to the definition of a forbidden preference, considered under any section and for any purpose, that it must have been made by the debtor' while insolvent.' A solvent debtor cannot make a preference. It is therefore essential to the argument of the trustee that the transfer of the land contract to the bank was not 'made' in 1907, when it was signed and delivered, nor in 1908, while the bank was making advances on the strength of it; and, indeed, that it had never been 'made' down to the date of the adjudication, because it was not recorded until after adjudication. I cannot adopt this theory. This transfer was absolutely and completely made in July, 1907, and all the incidents of security for the amount now due
had attached as early as March, 1908, and during all this time Sayed was perfectly solvent, and had a right to give such a security and the bank had a right to receive it.
"Carrying the same inquiry a step further, we find that the intent to give a preference- that is, to pay one creditor, leaving other creditors in danger of not being paid as fully-must exist on the part of the giver of the security at the time it is given, and the receiver must then have cause to believe that the giver has such intent."
This decision draws attention to a further element necessary to the constitution of a preference— the preference must be over creditors of the same class. Hence a giving of security for a present loan can under no circumstances ever constitute a preference within the meaning of the act over already existing creditors. The justice of this is obvious. The prior creditors are not injured in any way by the giving of such security, provided of course it be given in good faith and be not disproportionate, since the new loan, presumably at least, goes into the estate of the bankrupt, and hence indirectly enriches his creditors, who in turn can always have the advantage of the pledged securities by a return of the amount of the loan. The case is thus entirely different from that where an insolvent gives security to one of two existing creditors. It is such a transaction which the Bankruptcy Act deems a voidable preference. On this additional requisite of a preference the court, in the case we are discussing, says:
"A security is not a preference, unless it puts one creditor ahead of others of the same class, and one who receives security in exchange for a present loan is not one of the same class as an existing creditor. Hence a security given for a present loan is not a preference, no matter how insolvent the creditor may be. In this case, $200 of the amount was loaned at the time the assignment of the contract was given. There was an indefinite agreement to make further loans on the same security, and further loans were, from time to time, made, all while the debtor was solvent and all while there was no obligation under the bankrupt law for any recording. Each time that the bank was requested to and did advance an additional amount, it did it on the strength of the security which it already had received in contemplation of such future advances, and it seems to me that each such advance is, in substantial effect, a loan in exchange for present security. Each time by virtue of the transaction the bank contemporaneously received an additional interest in the security. In March, 1908, each fraction of the total existing loan had been paid over upon the faith of security received ir attaching at the time of the advance. I do not think this situation is at all changed by the fact that the old bank transferred the loans and the security to the new bank, and that the new bank afterwards took a new assignment, somewhat more formal, but which did not change the rights of anyone."
It should be unnecessary to add that if there be any fraud or double dealing in such loan the whole transaction may be set aside.
See Decision No. 1391.
Bankruptcy: Acts of Bankruptcy: General Assignments.
In the preceding note we have been considering a preference as a voidable transaction which may be set aside by the trustee in bankruptcy for the benefit of the body of the creditors. In addition to such aspect, however, a preference constitutes an act of bankruptcy, i. e., one of those acts on the proof of whose commission the court will declare a party a bankrupt.
Another act of bankruptcy is a general assignment: To constitute such act the assignment must be what its name indicates — general, covering all the property which the assignor possesses. If one be actually insolvent and while in such state makes a general assignment he has committed an act of bankruptcy and may, on petition and proof, be adjudicated a bankrupt. It is needless to say that the insolvency is just as necessary an element as the assignment. The assignment, moreover, need not be in any set form. Anything which expresses the intention to make a general assignment is sufficient. Indeed an assignment under certain conditions may in itself be unenforceable and ineffectual and yet nevertheless it may constitute an act of bankruptcy. So it is held in a recent case, In re Federal Lumber Co., Decision No. 1392, where the court, in dealing with the nature of a general assignment as constituting an act of bankruptcy under the Bankruptcy Act, says:
"It is true that a general assignment may be made without a formal deed of assignment. Thus in Re C. H. Bennett Shoe Co. (D. C.), 140 Fed. 687, the stockholders of the corporation signed an agreement, and an appointment such as under the laws of Connecticut had the effect, and was understood by them to have the effect, of assigning its property to its directors, and making its trustees to wind up its affairs. Thus in Re Salmon (D. C.), 143 Fed. 395, part of the alleged bankrupts' property had been taken charge of by a state official, according to the provisions of certain State laws, for the benefit of all their creditors and, the bankrupts having thereupon conveyed to the same official the remainder of their property for the benefit of all the creditors, it was held that the two transactions together amounted to a general assignment. And thus in Re Thomlinson Co., 154 Fed. 83, 83 C. C. A. 550, a bill of sale of all the bankrupt's property conditioned that the grantee should sell or convert it into money, pay all the creditors pro rata with the proceeds and return the surplus, if any, to the grantor, was held to amount to a general assignment. In all such cases, however, what was done was done with the intent that it should effect a present transfer of all the grantor's property.
"It is true also that if a grantor makes for the benefit of his creditors what purports to be and is intended by him to be a general assignment, and is accepted as such by the assignee named, this will be none the less an act of bankruptcy though invalid for some purposes. Re Meyer, 98 Fed. 976, 39 C. C. A. 368, and, under Act March 2, 1867, c. 176, 14 Stat. 517, Re Mendelsohn, 3 Sawy. 342, Fed. Cas.