Opinion
Argued October 1, 1935 —
Decided July 15, 1936.
1. It is elementary that an agreement altering the terms of a previous contract must, to impose the obligation of a contract, rest upon a new and independent consideration.
2. The payment of part of a liquidated debt or demand which has been given and received in full satisfaction thereof does not bar the creditor from recovering the remainder, as the payment of part is not regarded in law as a satisfaction of the whole, unless it is made by virtue of an agreement supported by a consideration.
3. A promise to do what the promisor is already legally bound to do is an unreal consideration. Yet, an undertaking to pay part of the debt before maturity, or at a place other than that where the obligor was legally bound to pay, or to pay in property, regardless of value, or to effect a composition with creditors by payment of less than the sum due, is a sufficient consideration in law. The true test is whether there is an additional consideration adequate to support an ordinary contract and consists of something which the debtor was not legally bound to do or give.
4. Ordinarily, the actual performance of that which one is legally bound to do stands on the same footing as his promise to do that which he is legally compellable to do. But a different rule prevails where bona fide disputes have arisen respecting the relative rights and duties of the parties, or the debt or demand is unliquidated, or the contract is wholly executory on both sides.
5. A consideration is essential to the validity of an accord and satisfaction.
6. Plaintiff below leased to defendants a retail store situate in the business district of the city of Paterson for the term of two years, with an increase of $300 in the rent for the second year over that paid for the first year. Defendants, before the expiration of the first year, told plaintiff it was impossible for them to pay the increase in rent for the second year because of business conditions; that they had great difficulty in paying the rent at the rate fixed for the first year, and that if he insisted upon the increase called for in the lease, they would be forced to vacate the premises; and they claimed that plaintiff thereupon agreed to let them remain in the store for the second year at the rate paid for the first year, and they accordingly paid rent for eleven months of the second year at that rate, which payments were accepted by plaintiff. At the expiration of the term, defendants vacated the premises and plaintiff brought suit to recover the unpaid balance of the rent reserved by the lease for the second year of the term. Held, that the second agreement alleged to have been made between the parties was not supported by a valid consideration, and therefore created no legal obligation, nor valid defense to the suit by the landlord to recover for the unpaid balance in accordance with the terms of the original lease.
On appeal from a judgment of the First District Court of the city of Paterson.
Before Justices HEHER and PERSKIE.
For the appellants, Bernstein Altschuler ( Jacob L. Bernstein, of counsel).
For the respondent, Mortimer L. Mahler.
By an indenture dated April 16th, 1931, plaintiff leased to defendants, for the retail merchandising of women's wearing apparel, store premises situate in the principal business district of the city of Paterson. The term was two years, to commence on May 1st next ensuing, with an option of renewal for the further period of three years; and the rent reserved was $2,100 for the first year, and $2,400 for the second year, payable in equal monthly installments in advance.
The state of the case settled by the District Court judge sets forth that defendants adduced evidence tending to show that, in the month of April, 1932, before the expiration of the first year of the term, they advised plaintiff that "it was absolutely impossible for them to pay any increase in rent; that their business had so fallen down that they had great difficulty in meeting the present rent of $175 per month; that if the plaintiff insisted upon the increase called for in the lease, they would be forced to remove from the premises or perhaps go out of business altogether;" and that plaintiff "agreed to allow them to remain under the same rental `until business improved.'" While conceding that defendants informed him that "they could not pay the increase called for in the lease because of adverse business conditions," plaintiff, on the other hand, testified that he "agreed to accept the payment of $175 each month, on account." For eleven months of the second year of the term rent was paid by defendants, and accepted by plaintiff, at the rate of $175 per month. The option of renewal was not exercised; and defendants surrendered the premises at the expiration of the term, leaving the last month's rent unpaid. This action was brought to recover the unpaid balance of the rent reserved by the lease for the second year — $25 per month for eleven months, and $200 for the last month.
The District Court judge found, as a fact, that "a subsequent oral agreement had been made to change and alter the terms of the written lease, with respect to the rent paid," but that it was not supported by "a lawful consideration," and therefore was wholly ineffective.
The insistence is that the current trade depression had disabled the lessees in respect of the payment of the full rent reserved, and a consideration sufficient to support the secondary agreement arose out of these special circumstances; and that, in any event, the execution of the substituted performance therein provided is a defense at law, notwithstanding the want of consideration. The principle invoked is applied in Long v. Hartwell, 34 N.J.L. 116; Halpern v. Shurken, 98 N.J. Eq. 28; Frank Wirth, Inc., v. Essex Amusement Corp., 115 N.J.L. 228. It is said also that, "in so far as the oral agreement has become executed as to the payments which had fallen due and had been paid and accepted in full as per the oral agreement," the remission of the balance of the rent is sustainable on the theory of gift, if not of accord and satisfaction — citing McKenzie v. Harrison, 120 N.Y. 260; 24 N.E. Rep. 458; Evans v. Lincoln Co., 204 Pa. 448; 54 Atl. Rep. 321; Malis v. Campo, 25 Pa. Dist. 32; 43 A.L.R. 1458.
It is not suggested that the primary contract under consideration was of a class which may not lawfully be modified by parol, except to the extent that the substituted performance has been actually and fully executed and accepted; and we are not therefore called upon to consider that question. See Kerzner v. Chanin, 98 N.J.L. 38; Long v. Hartwell, supra; Troth v. Millville Bottle Works, 89 Id. 219; Headley v. Cavileer, 82 Id. 635; Wilkinson v. Plaket, 5 N.J. Mis. R. 853 ; affirmed, 104 N.J.L. 451 ; Halpern v. Shurkin, supra. The point made by respondent is that the subsequent oral agreement to reduce the rent is nudum pactum, and therefore created no binding obligation.
It is elementary that the subsequent agreement, to impose the obligation of a contract, must rest upon a new and independent consideration. The rule was laid down in very early times that even though a part of a matured liquidated debt or demand has been given and received in full satisfaction thereof, the creditor may yet recover the remainder. The payment of a part was not regarded in law as a satisfaction of the whole, unless it was in virtue of an agreement supported by a consideration. Pinnel's Case, 5 Coke 117, a; 77 Eng. Reprint 237; Fitch v. Sutton, 5 East. 230; Foakes v. Beer, 9 App. Cas. 605; Cumber v. Wane, 1 Str. 426; Chicago, Milwaukee and St. Paul Railway Co. v. Clark, 178 U.S. 353; 20 S.Ct. 924; 44 L.Ed. 1099; Williston on Contracts ( Rev. Ed.) §§ 120 et seq.; Anson on Contracts ( Turck Ed.) 229, 234 et seq. The principle is firmly imbedded in our jurisprudence that a promise to do what the promisor is already legally bound to do is an unreal consideration. Schaefer v. Brunswick Laundry Co., 116 N.J.L. 268; Haynes Auto Repair Co. v. Wheels, Inc., 115 Id. 447; 180 Atl. Rep. 836; Durant v. Block, 113 N.J.L. 509; Decker v. Smith Co., 88 Id. 630; Watts v. Frenche, 19 N.J. Eq. 407; Clyne v. Helmes, 61 N.J.L. 358; Chambers v. Niagara Fire Insurance Co., 58 Id. 216. It has been criticised, at least in some of its special applications, as "mediaeval" and wholly artificial — one that operates to defeat the "reasonable bargains of business men." See Professor Ames' Treatise, tit. "Two Theories of Consideration," in 12 Harvard Law Review 515, 521; Chicago, Milwaukee and St. Paul Railway Co. v. Clark, supra; Sigler v. Sigler, 98 Kan. 524; 158 Pac. Rep. 864; Brooks v. White, 43 Mass. 283; Bolt v. Dawkins, 16 S.C. 198, 214; Wm. Lindeke Land Co. v. Kalman, 190 Minn. 601; 252 N.W. Rep. 650. But these strictures are not well grounded. They reject the basic principle that a consideration, to support a contract, consists either of a benefit to the promisor or a detriment to the promisee — a doctrine that has always been fundamental in our conception of consideration. It is a principle, almost universally accepted, that an act or forebearance required by a legal duty owing to the promisor that is neither doubtful nor the subject of honest and reasonable dispute is not a sufficient consideration. Williston on Contracts ( Rev. Ed.), §§ 103b, 120, 130; Contracts A.L.I., § 76; Anson on Contracts ( Turck Ed.) 229, 234, et seq.
Yet any consideration for the new undertaking, however insignificant, satisfies this rule. Coast National Bank v. Bloom, 113 N.J.L. 597 . For instance, an undertaking to pay part of the debt before maturity, or at a place other than where the obligor was legally bound to pay, or to pay in property, regardless of its value, or to effect a composition with creditors by the payment of less than the sum due, has been held to constitute a consideration sufficient in law. The test is whether there is an additional consideration adequate to support an ordinary contract, and consists of something which the debtor was not legally bound to do or give. Haynes Auto Repair Co. v. Wheels, Inc., supra; Sigler v. Sigler, supra; Bryant v. Proctor (14 B. Mon.), 53 Ky. 451; Hastings v. Lovejoy, 140 Mass. 261; 2 N.E. Rep. 776; White v. Walker, 31 Ill. 422; Lamb v. Rathburn, 118 Mich. 666; 77 N.W. Rep. 268; Evans v. Lincoln Co., supra; Jaffray v. Davis, 124 N.Y. 164; 26 N.E. Rep. 351; Bice v. Silver, 170 Ia. 255; 152 N.W. Rep. 498; Singer Sewing Machine Co. v. Lee, 105 Md. 663; 66 Atl. Rep. 628; Perkins v. Lockwood, 100 Mass. 249; Good v. Cheesman, 2 B. Ad. 328; Williston on Contracts ( Rev. Ed.), §§ 103b, 131; Anson on Contracts ( Turck Ed.) 236, 250; 1 C.J. 541, 544, 545.
And there is authority for the view that, where there is no illegal preference, a payment of part of a debt, "accompanied by an agreement of the debtor to refrain from voluntary bankruptcy," is a sufficient consideration for the creditor's promise to remit the balance of the debt. But the mere fact that the creditor "fears that the debtor will go into bankruptcy, and that the debtor contemplates bankruptcy proceedings," is not enough; that alone does not prove that the creditor requested the debtor to refrain from such proceedings. Melroy v. Kemmerer, 218 Pa. 381; 67 Atl. Rep. 699. See Williston on Contracts ( Rev. Ed.), § 120, and cases cited in footnote.
The cases to the contrary either create arbitrary exceptions to the rule, or profess to find a consideration in the form of a new undertaking which in essence was not a tangible new obligation or a duty not imposed by the lease, or, in any event, was not the price "bargained for as the exchange for the promise" (see Coast National Bank v. Bloom, supra), and therefore do violence to the fundamental principle. They exhibit the modern tendency, especially in the matter of rent reductions, to depart from the strictness of the basic common law rule and give effect to what has been termed a "reasonable" modification of the primary contract. See Bowman v. Wright, 65 Neb. 661; 91 N.W. Rep. 580; 92 Id. 580; Ten Eyck v. Sleeper, 65 Minn. 413; 67 N.W. Rep. 1026; Ossowski v. Wiesner, 101 Wis. 238; 77 N.W. Rep. 184; Hastings v. Lovejoy, supra; Evans v. Lincoln Co., supra; Nonamaker v. Amos, 73 Ohio St. 163; 76 N.E. Rep. 949; Lamb v. Rathburn, supra; Wm. Lindeke Land Co. v. Kalman, supra; Sigler v. Sigler, supra; White v. Walker, supra; Donellan v. Read, 3 B. Ad. 899; 23 E.D.L. 215; 6 Eng. Rul. Cas. 298; Jaffray v. Greenbaum, 64 Iowa 492; 20 N.W. Rep. 775; Sargent v. Robertson, 17 Ind. App. 411; 46 N.E. Rep. 925; United Steel Co. v. Casey, 262 Fed. Rep. 889; Commercial Car Line v. Anderson, 224 Ill. App. 187; 43 A.L.R. 1456, 1458, 1478.
So tested, the secondary agreement at issue is not supported by a valid consideration; and it therefore created no legal obligation. General economic adversity, however disastrous it may be in its individual consequences, is never a warrant for judicial abrogation of this primary principle of the law of contracts.
It remains to consider the second contention that, in so far as the agreement has been executed by the payment and acceptance of rent at the reduced rate, the substituted performance stands, regardless of the want of consideration. This is likewise untenable. Ordinarily, the actual performance of that which one is legally bound to do stands on the same footing as his promise to do that which he is legally compellable to do. Anson on Contracts ( Turck Ed.) 234; Williston on Contracts ( Rev. Ed.), §§ 130, 130a. This is a corollary of the basic principle. Of course, a different rule prevails where bona fide disputes have arisen respecting the relative rights and duties of the parties to a contract, or the debt or demand is unliquidated, or the contract is wholly executory on both sides. Anson on Contracts ( Turck Ed.) 240, 241.
It is settled in this jurisdiction that, as in the case of other contracts, a consideration is essential to the validity of an accord and satisfaction. Haynes Auto Repair Co. v. Wheels, Inc., supra; Decker v. Smith Co., supra; Union Cleaners and Dyers, Inc., v. Zeidman, 113 N.J.L. 86 . On reason and principle, it could not be otherwise. This is the general rule. 1 Am. Jur. 235. The cases cited by appellant, Long v. Hartwell, supra; Halpern v. Shurken, supra, and Frank Wirth, Inc., v. Essex Amusement Corp., supra, are not in point. It results that the issue was correctly determined.
Judgment affirmed, with costs.