Story Case

Leland Culhan owed George Getz the sum of $60. The day of payment was long past and still Culhan was unable to pay. Finally Getz came to Culhan and said, "Culhan, you are in mighty bad luck. I don't want to press you for the little debt you owe me but I need the money. I'll make this agreement with you. If you pay me what you get from the sale of any personal property you might own, I'll call our debt square".

Culhan, thereupon, sold a cow and turned the money, thirty-two dollars, over to Getz. Two days later Getz sued Culhan for the rest of the money. Culhan defends with the above agreement. How do you decide?

Ruling Court Case. Bender Vs. Been, Volume 78 Iowa Reports, Page 283; Volume 5 Lawyers' Reports Annotated, Page 596

Been signed a promissory note for $220, made payable to Bender. He was not able to make payment thereof when it fell due; he went to Bender and explained that he was unable to pay the note and asked for an extension of time or some other settlement of the note. After some negotiations, Bender decided to accept part payment in satisfaction of the whole amount due. The following agreement was made in writing and signed by them:

"Received of Charles Been the sum of $40, and the same credited on a note given for $220, signed by Charles Been. The consideration of payment of the above $40 is that said Charles Been is to be released on said note." Thereafter, however, Bender sued on the note for the balance of the amount called for therein.

It was contended by Been that, by their agreement, he was no longer liable upon the note. By Bender it was insisted that the agreement was not binding upon him, because there was no consideration in mere part payment of a larger sum then due.

Mr. Justice Beck delivered the opinion of the Court, in which it is said: "It is a familiar rule of the law that a payment of a part of a note or a debt existing in any different form, in discharge of the whole, will not bar the recovery of the balance unpaid. The rule is based upon the principle that there is no consideration for the promise of discharge; the sum paid being in fact due from the payee on the debt, he rendered no consideration to the payee for his promise to release the balance of the debt".

Accordingly, judgment was given for Bender in this action.

Ruling Law. Story Case Answer

Where a person owes a certain sum of money to another, an agreement between them whereby the creditor releases the debtor, in consideration of a smaller sum paid is not a binding contract upon them so as to prevent the creditor from recovering the balance due. In such a case, it is apparent that there is no consideration for the agreement, because the debtor is under obligation to pay; and the creditor is entitled to call for the full amount. A promise to accept less than the full amount is not supported by a consideration. This case should be clearly distinguished from a composition with creditors, where creditors agree together. Also, this applies only where the debt is presently due. If, for example, the debt is not due for thirty days, an agreement between them whereby the creditor accepts in the present a less sum is binding; here a good and sufficient consideration is found in the debtor's surrendering his right to wait thirty days before paying. It follows from what has been said that there was no consideration for the promise of Getz, in the Story Case, to accept less than the full amount of his debt. Judgment must be given for Getz.