Shoemaker v. Farrell

64 Pa. Super. 34 | Pa. Super. Ct. | 1916

Opinion by

Kephart, J.,

An agreement to extend the time of payment of an overdue obligation must be based on a consideration: Hartmann v. Danner, 74 Pa. 36, “for the plain reason that, in a legal sense, it is neither a benefit to the creditor, who is entitled to the whole, nor an injury to the debtor, who ought to have done this and more without any promise from the creditor.” And as further stated in that case “it may be, that when there is a contract to pay interest for a specific period on a debt already due, so that the debtor, without the consent of the creditor, is thereby precluded from paying the debt and interest until the term expires, there is an appreciable benefit to the creditor as well as injury to the debtor.” Though it was held in Rumberger v. Golden, 99 Pa. 34, that where the extension had been given for a definite time, at a certain specified rate of interest, that the contract was “nudum pactum, for It was already a contract relation of the parties. Having been made before the debt was due, it was deemed of like effect as if made after, though in many cases a contract made before, would be binding, which would not, if made after......A promise to pay the legal rate of interest made before a debt becomes due, or after, or a part payment of an overdue debt, is not a good consideration for a contract to forbear to sue.” This court, in Brush Hat Mfg. Co. v. Abeles, 45 Pa. Superior Ct. 243, decided that the payment of- a part of a debt after maturity was not an accord and satisfaction where the consideration for such part, payment was the mere fact that the creditor would be saved the delay and trouble of further prosecuting the suit. The doctrine is there reaffirmed that a part payment of an overdue, ascertained, unrestricted and undisputed debt is not a good consideration for the promise to receive it in satisfaction. The consideration, which will support an agreement to extend the time of payment, while an essential part of every contract, may be a-slight advantage to one party or a trifling inconvenience to the other. In Hendrick v. Thomas, 106 Pa. 327, where a judgment was restricted to certain specified property, an agreement to receive a part of the overdue judgment in satisfaction of the whole was held to be based on a sufficient consideration, even though it could be proved that the property out of which it was collectible was of greater value than the whole debt.

The obligation in the present case was a bond and mortgage, the lien of both being restricted to certain premises described in the instruments. They were due eight years from date. Under an agreement made before maturity the rate of interest was reduced to five per cent, and payments should be made of not less than $500.00 annually on the principal until the maturity of the mortgage, at which timevthe balance of the principal was to be paid. The change in the time the payment of principal was to be made, would be a sufficient consideration to support the entire agreement: Brush Hat Mfg. Co. v. Abeles, supra. The court below held this to be the law and opened the judgment, which included interest at six per cent, for the period before maturity. No complaint is made as to this action of the court. The appellant averred that when the mortgage matured and the balance of ,the principal was due, the foregoing agreement was continued as to the annual periodical payments of 1500.00 on the principal and the interest rate of five per cent. To substantiate this, statements from the appellee, with letters demanding payment in accordance with this agreement, were exhibited. The payment of interest and a portion of the principal had been made and accepted in accordance with that agreement. When the appellee entered judgment it included (infer alia) interest at six per cent, from the maturity of the mortgage to 1914, and the court below refused to disturb that portion of the judgment. Under the admitted facts this action was based on an erroneous conception of the law. The lien was restricted to a certain piece of land and as indicated in Brush Hat Mfg. Co. v. Abeles, supra, where claims are thus restricted an exception to the general rule exists and the promise to pay at a definite time in the future, at a fixed rate of interest, would be a sufficient consideration on which to rest such agreements: Hendrick v. Thomas, supra. It may easily be seen how such payments would benefit a creditor, as compared to one who holds a judgment against the debtor personally; the latter may be kept alive from time to time, and through it future property acquired by the debtor may be reached. The extension of time was definite in terms and an advantage would be secured by such extension: Hartmann v. Danner, supra. Mr. Justice Mitchell, in Ebert v. Johns, 206 Pa. 395, states the modern idea of the law thus: “The rule that payment of a smaller sum is not a good accord and satisfaction for a larger one applies only between debtor and creditor. It was á deduction of strict scholastic logic in the day when money was regarded as having a fixed and unchangeable value. Hence a part payment of money due could never logically, be treated even by agreement as equivalent to a payment of the whole. In the business methods of the present it has come to be recognized that money like other commodities has fluctuations of value not only in the general market, but also and i more especially to the individual. To a merchant with a note coming due $5,000.00 before three o’clock to-day, which will save him commercial credit, may well be worth more than $20,000.00 to-morrow after his note has gone to protest. The recognition of this business condition has led to a statutory change of the rule in some states: 1 Am. & Eng. Ency. of Law, tit. Accord (2d Ed.) p. 414. But the rule was always regarded as more logical than just, and as coming very close to a contradiction of the general rule that the law will not measure the amount or value of the consideration if parties have agreed upon it.” Melroy v. Kemmerer, 218 Pa. 381. When money is placed at interest, the earning power of such investment is a consideration for the loan and when it is agreed that a certain rate per cent, shall be paid, this constitutes the inducement for the loan; there is no substantial reason why such consideration should not support the extension of time of a note or obligation past due when such extension is made for a definite time; as well as such consideration supporting the obligation when it is originally created. The questions of fact presented by the evidence should be submitted to the jury. The default mentioned in the original agreement is like any other default or forfeiture. It may be waived and the payment and acceptance of the agreed rate of interest, with the payments of the principal, would be evidence of such waiver. Until the parties exercised their option to enforce the forfeiture, the effect of the forfeiture would not be valid, but when such option is exercised, from that time the agreement would come under the penalty prescribed in the forfeiture. As to the authority of the officer of the bank to make the agreement here contended for, the correspondence of the vice-president, showing knowledge by the directors of the agreement, and board action directing certain steps to be taken. unless the agreement was complied with, is sufficient to warrant a finding of ratification, even though the cashier did not have the authority here contended for.

The assignments of error are sustained. The judgment is reversed and the rule granted in the court below is reinstated and made absolute.'

Case Details

Case Name: Shoemaker v. Farrell

Court Name: Superior Court of Pennsylvania

Date Published: Jul 18, 1916

Citation: 64 Pa. Super. 34

Docket Number: Appeal, No. 17

Court Abbreviation: Pa. Super. Ct.