U.S. Supreme Court
Cleaveland v. Richardson, 132 U.S. 318 (1889)
Cleaveland v. Richardson
Argued November 21, 1889
Decided December 9, 1889
132 U.S. 318
A creditor made a compromise with his debtor for sixty cents on the dollar, and subsequently sued him to recover the balance of the claim on the ground of fraudulent action by the debtor in obtaining the compromise, and that the debtor had violated his agreement not to voluntarily pay any other creditor more than 60 percent.
Held, that he could not recover because --
(1) There was no breach of good faith on the part of the debtor, and no misrepresentation as to his assets, and no false answer made by him to any question.
(2) The payment of more than 60 percent to another creditor having been made when the latter had an attachment suit against the debtor, which was about to be tried, was not a voluntary payment within the meaning of the agreement.
This is an action of assumpsit, brought in the circuit court of the United states for the Northern District of Illinois in September, 1884, by George C. Richardson, Charles S. Smith, George K. Guild, Ralph L. Cutter, and Harrison Gardner, partners, composing the firm of George C. Richardson & Co., against James O. Cleaveland, Cornelius B. Cummings, Charles W. Woodruff, and Washington Libbey, partners, composing the firm of Cleaveland, Cummings & Woodruff. The declaration contains the money counts, and annexed to it is a copy of an account showing various items of merchandise sold by the plaintiffs to the defendants in August, September, and October, 1883, amounting in debit items to $12,125.25, with a credit item of cash, December 31, 1883, amounting to $7,275.15, leaving a balance due to the plaintiffs on the last-named day of $4,850.10.
The defendants were served with process, and put in various pleas, and there were replications and rejoinders raising issues covered by the findings of the court on the trial. The defendant Woodruff having died, it was ordered that the suit proceed chanroblesvirtualawlibrary
against the surviving defendants. A trial before a jury was commenced, but a juror was withdrawn, and the parties duly waived a trial by jury and consented that the case be tried by the court. The court filed special findings, as follows:
"1. James O. Cleaveland, Cornelius B. Cummings, and Washington Libbey, three of the defendants, with one William F. Shelley, on the 31st of December, 1881, formed a limited co-partnership, under the statute of the State of Illinois in that behalf under the name of 'Cleaveland, Cummings & Shelley,' to do a wholesale business in merchandise in Chicago, in which the said Washington Libbey was a limited partner, having put in $50,000 of capital."
"2. About the 1st of May, 1883, the said Shelley went out of the firm, and Charles W. Woodruff, the other defendant in this cause, came into the firm, which assumed the name of 'Cleaveland, Cummings & Woodruff,' and continued to do business until as hereinafter stated."
"3. Said firm of 'Cleaveland, Cummings & Woodruff' intended, as between themselves, to do business as a limited partnership, but they did not take the steps required by law to make said firm a limited partnership under the statute of Illinois in that behalf."
"4. The plaintiffs sold to the firm of Cleaveland, Cummings & Woodruff, upon the 28th, 29th, and 30th of August, 1883, and upon the 14th and 15th of September, 1883, merchandise to the amount of $8,064.03, payable by the said firm in sixty days from September 15th, and on the 24th of October sold to Cleaveland, Cummings & Woodruff merchandise to the amount of $1,291.83, payable in sixty days from November 1st, and the plaintiffs were also the holders of two notes of said Cleaveland, Cummings & Woodruff, dated Chicago, September 15, 1883, due in four months from the date thereof, payable to the order of the defendants, and endorsed by them, one for $1,347.99 and one for $1,421.40, which two notes matured January 18, 1884, said several amounts aggregating $12,125.25."
"5. On the 30th of October, 1883, Washington Libbey paid
to James O. Cleaveland $1,000 for his interest in the firm of Cleaveland, Cummings & Woodruff, and said James O. Cleaveland, Cornelius B. Cummings, Charles W. Woodruff, and Washington Libbey signed and delivered to James O. Cleaveland an instrument in writing as follows, viz.:"
" The co-partnership heretofore existing between James O. Cleaveland, Cornelius B. Cummings, Charles W. Woodruff, and Washington Libbey, under the firm name of Cleaveland, Cummings & Woodruff, has this day been dissolved by mutual consent, and such dissolution to take effect Nov. 1, 1883. All accounts and indebtedness due the late firm of Cleaveland, Cummings & Woodruff must be paid to Cummings, Woodruff & Brown, successors to Cleaveland, Cummings & Woodruff, by whom all liabilities of the late firm must be paid, and said Cleaveland held harmless therefrom."
" Dated Chicago, Illinois, Oct. 30, A.D. 1883."
"JAMES O. CLEAVELAND"
"CHARLES W. WOODRUFF"
" 6. It was contemplated, October 30, 1883, that a new firm would be formed, composed of Cornelius B. Cummings, Charles W. Woodruff, and Swan Brown, as general partners, and Washington Libbey as special partner, but said firm was never formed; but the said Cleaveland supposed it was so formed when he sold out his interest to the said Libbey."
" 7. The firm of Cleaveland, Cummings & Woodruff stopped business on or before November 14, 1883. Said firm owed for borrowed money about $179,000, which was unsecured, and for merchandise about $461,000, and the assets of said firm were sufficient to pay the borrowed money in full, and not quite 60 percent on the dollar upon the mercantile debts. The said Washington Libbey was reputed to be a man of large wealth."
" 8. On the 14th of November, 1883, all the bills receivable, notes, and accounts of Cleaveland, Cummings & Woodruff
were sold to Columbus R. Cummings for his two notes for $201,110.43, one for $110,000, which was delivered to the Union National Bank, in full payment of borrowed money due by said firm to said bank. The other, for $91,110.43, was delivered to a member of said firm of Cleaveland, Cummings & Woodruff. Columbus R. Cummings was a brother of Cornelius B. Cummings and a director in the Union National Bank, to which he had introduced said firm, and felt in honor bound to see that the bank suffered no loss."
" 9. Immediately thereafter, Cleaveland, Cummings & Woodruff sent J. J. Knickerbocker, as their attorney, to New York and proposed to the mercantile creditors of that firm to pay them sixty cents on the dollar of their respective claims. When application to the plaintiffs was made to accept sixty cents on the dollar of their claims, some had settled at that rate and some had not. The attorney of Cleaveland, Cummings & Woodruff explained the situation of the assets of Cleaveland, Cummings & Woodruff, saying that the borrowed money was to be paid in full, which would not leave enough to pay quite 60 percent of the remaining indebtedness. Libbey's liability as a member of the firm was spoken of, when said attorney stated to the plaintiffs that he had not had opportunitydebtedness. Libbey's liability as a member of the firm was spoken of, when said attorney stated to the plaintiffs that he had not had opportunitydebtedness. Libbey's liability as a member of the firm was spoken of, when said attorney stated to the plaintiffs that he had not had opportunity to examine into the question, and was not in possession of information to know whether Libbey could make a successful defense or not, but that it was a question they could investigate for themselves. One of said plaintiffs said to said attorney they had sold no goods to the defendants on the strength that Libbey was more than a special partner; that no credit had been given to the firm on the faith that Libbey sustained any other relation to it; that Libbey had lost his special capital, and that they had no desire to make him pay more. It does not appear, however, from the evidence that the defendants or their attorney communicated to the plaintiffs the fact that Libbey had signed the instrument in writing referred to in the fifth finding, or that he made any statement as to Libbey's financial ability to pay the debts of said firm. The plaintiffs at first refused, but about the 29th of December, 1883, upon the receipt of the sum of
$7,275.15, which was 60 percent of their entire claim, they, by their agent, Walter M. Smith, executed and delivered to the said John J. Knickerbocker, the attorney for the defendants at Chicago, an instrument in writing, as follows:"
" For and in consideration of the sum of seven thousand two hundred and seventy-five and 15/100 ($7,275.15) dollars to us in hand paid by John J. Knickerbocker, of Chicago, Ill., the receipt whereof is hereby acknowledged and confessed, we have sold, assigned, transferred, and delivered, and do hereby sell, assign, transfer, set over, and deliver, to said Knickerbocker, his heirs, executors, administrators, and assigns, the above and foregoing claim in our favor and against the late firm of Cleaveland, Cummings & Woodruff, and all other claims and demands which we now have, or might or could have, against the said Cleaveland, Cummings & Woodruff, by reason of the happening of any matter or thing from the beginning of the world to the day of the date hereof, without recourse to us, and authorize and empower said Knickerbocker to sue for, collect, settle, compound, and give acquittance therefor as fully as we could do in person."
" In witness whereof we have hereunto set our hand and seal this 29th day of December, 1883."
"GEORGE C. RICHARDSON & Co. [Seal]"
"Per WALTER M. SMITH [Seal]"
"Attached to said instrument are the following:"
"Chicago, Sept. 15, 1883"
" Four months after date, we promise to pay to the order of ourselves, one thousand three hundred and forty-seven 99/100 dollars at the Mechanics' National Bank, N.Y. value received."
" Due Jan'y 18, 1884."
" $1,347.99 CLEAVELAND, CUMMINGS & WOODRUFF"
"[Endorsed] 'CLEAVELAND, CUMMINGS & WOODRUFF'"
"Chicago, Sept. 15, 1883"
" Four months after date, we promise to pay to the order of ourselves one thousand four hundred and twenty-one dollars
and 41/100 at the Mechanics' National Bank, N.Y., value received."
" Due Jan'y 18, 1884"
"[Endorsed] 'CLEAVELAND, CUMMINGS & WOODRUFF'"
"Mess. Cleaveland, Cummings and Woodruff to"
"George C. Richardson & Co., debtors"
Aug. 28. To mdse., 60 days, Sept. 15 . . . . $ 333.94
29. " " " . . . . 853.79
" " " " . . . . 156.06
30. " " " . . . . 859.35
" " " " . . . . 4,783.65
Sept. 14. " " " . . . . 324.74
15. " " " . . . . 227.17
" " " " . . . . 525.33
Oct. 24. " " Nov. 1 . . . . 1,291.83
"And Charles W. Woodruff, one of the said defendants at the same time, and as part of the same arrangement, delivered to the said agent of the plaintiffs an instrument in writing as follows, viz.:"
" John J. Knickerbocker. Jesse Holdom. Knickerbocker & Holdom, attorneys at law, 164 La Salle St."
"Chicago, _____, 188_"
" In consideration of a compromise this day made by Messrs. Geo. C. Richardson & Co. and Messrs. Jay, Langdon & Co., of New York city, of their respective claims against the late firm of Cleaveland, Cummings & Woodruff, of Chicago, Ill., the said Cleaveland, Cummings & Woodruff stipulate and agree not to pay voluntarily to any of their creditors holding claims in excess of one thousand dollars, to exceed 60 percent on the dollar in settlement: providing, however, that the payment of attorney's fees and court costs, in all cases
where suits have been heretofore or may hereafter be commenced, shall not be considered as an evasion or violation of this agreement."
"CLEAVELAND, CUMMINGS & WOODRUFF. Dec. 29th, 1883"
"10. In April, 1884, all the mercantile debts of Cleaveland, Cummings & Woodruff had been settled at sixty cents and released except about $88,000. The firm of Vietor & Achelis had not released their claim, but had brought a suit by attachment thereon against James O. Cleaveland, Cornelius B. Cummings, Charles W. Woodruff, and Washington Libbey which was about to be tried. The attorney of Cleaveland, Cummings & Woodruff paid to Vietor & Achelis sixty cents on the dollar of their claim, who thereupon released their said claim, but at the same time, said attorney of Cleaveland, Cummings & Woodruff gave his check, which was afterwards paid, to the attorneys of Vietor & Achelis, for twenty-five percent on the dollar of said claim, and said attorneys remitted twenty of said twenty-five percent to Vietor & Achelis. This payment to the attorneys of Vietor & Achelis was a cover under which Vietor & Achelis were to and did receive on their claim more than 60 percent, and such payment was made, after Vietor & Achelis had refused to take 60 percent, by agreement between the attorneys of Cleaveland, Cummings & Woodruff and Vietor & Achelis that Vietor & Achelis should receive eighty percent."
"11. The amount due on the original claim is $4,850.10, and the interest thereon from December 29, 1883, to April 14, 1886, is $67.35; making $5,529.45 in all."
Thereupon a judgment was entered, which states that the court finds the issues for the plaintiffs and assesses their damages at $5,529.45, and overrules a motion by the defendants for a new trial and orders that the plaintiffs recover from the defendants Cleaveland, Cummings, and Libbey, survivors of Cleaveland, Cummings & Woodruff, $5,529.45 damages and $147.80 costs. To review this judgment, the defendants have brought a writ of error. There is a bill of exceptions, which states that both parties chanroblesvirtualawlibrary
adduced evidence tending to prove the issues on their respective sides; that when the written paper dated October 30, 1883, set forth in the fifth special finding, was offered in evidence the defendants objected to its introduction on the ground that it was incompetent and irrelevant, but the court overruled the objection and admitted the paper in evidence, and the defendants excepted; that the plaintiffs also offered in evidence the paper dated December 29, 1883, signed "Cleaveland, Cummings & Woodruff," set forth at the close of the ninth special finding; that the defendants objected to its introduction on the grounds of variance and incompetency, but the court overruled the objection and admitted the paper in evidence, and the defendants excepted; that evidence was introduced touching the matters named in the tenth special finding, and the defendants adduced evidence tending to show that no payment was made to either of the mercantile creditors by preference, or with a view to discriminate between one of the said creditors and another; that the defendants objected to the evidence tending to show that Vietor & Achelis were paid more than 60 percent on the ground that such payment, if made as claimed by the plaintiffs, was not made voluntarily; that the court overruled the objection and held that, under the contract of December 29, 1883, signed "Cleaveland, Cummings & Woodruff," any payment over 60 percent was made voluntarily, unless such claim had gone to judgment, that the defendants excepted to such ruling, and that it appeared from the evidence that the borrowed money was paid in full during November, 1883, and each of the mercantile creditors received 60 percent on their claims from Cleaveland, Cummings & Woodruff. chanroblesvirtualawlibrary