Stern v. Franks

California Court of Appeal Dec 4, 1939 No. Civ. 2422Published

Before: Barnard

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Holding. The court held that the promissory note was unenforceable because the consideration for the note—the plaintiff's agreement to form a partnership and provide capital—wholly failed when the plaintiff refused to perform. Furthermore, the note was conditioned on payment from profits of the contemplated business, which never came into existence.

Issues

Whether a moral obligation to pay a debt discharged in bankruptcy constitutes sufficient consideration for a new note when the parties intended the consideration to be a separate partnership agreement.
Whether a promissory note is enforceable when the consideration for the note fails due to the payee's breach of the underlying agreement.
Whether a note payable out of a specific fund is enforceable if that fund never comes into existence.

Disposition. affirmed

Quotations verified verbatim against the opinion

“Nothing is consideration that is not regarded as such by both parties. It is the price voluntarily paid for a promisor’s undertaking.”

“The maker of a note is not liable where the note is payable out of a certain fund which fund never comes into existence.”

[677]

BARNARD, P. J. —

This is an action on a promissory note for $2,800, dated June 9, 1934.

The defendants were in the business of wholesaling wine. About February 1, 1934, the plaintiff entered into an agreement with them whereby he would buy and pay for wine in carload lots, place the wine in a warehouse and release small quantities to the defendants from time to time as they paid for it, with a profit of five cents per gallon to the plaintiff. After three or four carloads were handled in this manner the plan was modified, the plaintiff delivering wine in carload lots to the defendants who gave him several postdated checks, dated at intervals, covering the purchase price with the plaintiff’s profit. Several carloads were handled in this manner. At a time when $2,800 in postdated checks were outstanding on the last carload so handled certain creditors of the defendants levied an attachment, which led to bankruptcy proceedings. The defendants were adjudicated bankrupts, the outstanding checks were listed in that proceeding, and the plaintiff filed therein a claim for the amount of said checks. Subsequently, the note in question was given to the plaintiff by the defendants and thereafter this action was brought.

The court found that it was not true that $2,800 was now due on said promissory note; that it was true that the defendants were indebted to the plaintiff in the sum of $2,800; and that after the defendants were adjudicated bankrupts and while the bankruptcy proceeding was pending the plaintiff agreed with the defendants that if they would execute a note to him in the sum of $2,800 he would enter into a partnership with them for the purpose of wholesaling wine and would furnish $3,500 as capital, the plaintiff to hold title to all assets, the defendants to be silent partners and to work in and about the business, the plaintiff and the defendants to share equally in the profits, and that “from the profits the defendants would pay to the plaintiff the amount of the promissory note”. It was further found that pursuant to this agreement the defendants executed the promissory note, and that the plaintiff failed and refused to enter into the partnership and to furnish $3,500 as capital for the business. As conclusions of law it was found that because the plaintiff had failed to fulfill his agreement the con

[678]

Stern v. Franks

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