Judges: D. R. ALEXANDER
Agency: Department of Agriculture and Consumer Services
Latest Update: Aug. 26, 1985
Summary: Execution of composition agreement by creditors discharged all other creditor claims.
85-0409.PDF
STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
SIX L's PACKING COMPANY, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 85-0409A
) FAIR CHESTER TOMATO PACKERS, ) INC. and HARTFORD ACCIDENT )
AND INDEMNITY COMPANY, )
)
Respondents. )
)
RECOMMENDED ORDER
Pursuant to notice, a formal hearing was held in the above case before the Division of Administrative Hearings by its duly designated hearing officer Donald R. Alexander, on April 18, 1985, in Miami Florida.
APPEARANCES
For Petitioner: Mark S. London, Esquire
Post Office Box 6220 Hollywood, Florida 33081-0220
For Respondents: Arthur Slavin, Esquire
270 Madison Avenue
New York, New York 10016 BACKGROUND
This matter arose when petitioner, Six L's Packing Company, Inc., filed a complaint with the Department of Agriculture and Consumer Services alleging that respondent, Fair Chester Tomato Packers, Inc. (Fair Chester) was indebted to petitioner in the amount of $30,270.60 for four shipments of tomatoes sold in May 1984. Because Fair Chester was required to post a surety bond the surety company, Hartford Accident and Indemnity Company, was named a co-respondent in the action.
Respondent Fair Chester disputed the allegation in the complaint by answer dated January 9, 1985. Because the agency concluded that disputed facts existed the matter was forwarded to the Division of Administrative Hearings on January 29, 1985, with a request that a hearing officer be assigned to conduct a formal hearing.
By notice of hearing dated February 22, 1985, a formal hearing was scheduled for April 18, 1985, in Miami, Florida. At final hearing petitioner presented the testimony of its vice-president, William Lipman, and offered petitioner's exhibits 1-5; all were received in evidence. Respondents presented the testimony of Fair Chester's president, Arnold Rosenthal, and its counsel, Arthur Slavin, and offered respondents' exhibits 1-4; all were received in evidence.
The transcript of hearing was filed on April 29, 1985.
Memoranda of law were filed by respondents and petitioner on May 7 and 10, 1985, respectively, and have been considered by the undersigned in the preparation of this order.
At the outset of the hearing petitioner reduced its claim from $30,270.60 to $29,437.40. Accordingly, the issue herein is whether respondents are indebted to petitioner in that amount for four shipments of tomatoes sold to respondent Fair Chester in May, 1984.
Based upon all of the evidence the following findings of fact are determined:
FINDINGS OF FACT
Petitioner, Six L's Packing Company, Inc. (Six L's), is in the business of selling produce, including tomatoes. Its principal address is 2020 Scott Street, Hollywood, Florida.
Respondent, Fair Chester Tomato Packers, Inc. (Fair Chester), is engaged primarily in the business of packaging and distributing tomatoes in the New York City metropolitan area. It purchases produce from various sellers such as petitioner. As a licensed agriculture dealer, respondent is required to file a surety bond with the Department of Agriculture and Consumer Services
(Department) to insure payment of any indebtedness to persons selling agricultural products to the dealer. In this regard, Fair Chester has filed a $50,000 surety bond under written by respondent, Hartford Accident and Indemnity Company (Hartford).
On May 3, 4, 9 and 26 and June 7, 1984, petitioner sold five shipments of tomatoes to respondent for a price of $44,156. 1/ Within the next few months, Fair Chester was beset with financial problems and was unable to pay Six L's and other trade creditors. Because of this, the creditors formed a committee in an effort to secure payment of their claims. Eventually, a composition agreement was drawn whereby the unsecured trade creditors agreed to settle, release and discharge in full their claims against Fair Chester on condition that each creditor signing the agreement be paid 33 1/3 percent of its claim "in full payment and settlement thereof," and provided that 95 percent or more in dollar amount of all the debtor's unsecured trade creditors accepted the terms and provisions in writing on or before November 13, 1984.
More than 95 percent in dollar amount of the trade creditors accepted the terms and provisions of the composition agreement by the November 13, 1984 deadline. Six L's was one of those creditors who accepted the agreement. Although Six L's claimed that it executed the agreement only because of representations by respondent that it could still proceed against the surety bond in a separate administrative action, there is insufficient evidence to support such a finding. Six L's executed the agreement on November 8, 1984, and later received and cashed a check dated November 9, 1984, from Fair Chester in the amount of $14,718.60 which represented one-third of its total claim. Six L's has never rescinded the composition agreement.
Even though it signed the composition agreement, and received payment from Fair Chester as promised, Six L's filed a complaint with the Department against respondents on November 15, 1984, seeking payment of the $30,270.60 still owed. That amount was later reduced to $29,437.40 by agreement of the parties. The complaint precipitated the instant controversy.
One of the unsecured trade creditors owed monies was J. R. Brooks and Son, Inc. (Brooks), a grower in
Homestead, Florida. Brooks refused to enter into the composition agreement unless Fair Chester agreed that Brooks could also file an administrative complaint against Fair Chester seeking recovery against the surety bond.
Because Brooks' participation in the agreement was necessary to achieve the requirement that 95 percent or more in dollar amount of all unsecured trade creditors participate in the agreement, Fair Chester agreed to Brooks' proposal. An agreement was formalized by letter from Fair Chester's counsel to Brooks on November 1, 1984. The letter provided that Brooks' "acceptance of the Composition Agreement . . . shall be without prejudice to the complaint and/or proceeding which (it) commenced against (respondents) before the Department of Agriculture and Consumer Services." The agreement was not disclosed to other trade creditors or the surety company. Nonetheless, Six L's learned of this agreement at a later time.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes.
Petitioner concedes that it signed a composition agreement which discharged the debt of Fair Chester, but contends that the surety is still obligated to the creditors of its principal. It relies upon a number of cases from other jurisdictions to support this proposition, and upon Subsection 604.21(9), Florida Statutes, which provides as follows:
(9) Nothing in this section shall be construed as relieving a surety company from responsibility on properly established complaints against dealers, involved in a federal bankruptcy proceeding and against whom the department is prohibited from entering an order.
It further contends that the secret agreement by Fair Chester with Brooks constitutes a fraud upon the other creditors and accordingly has the effect of abrogating the agreement. Respondents reply that a release of a debt by composition with the principal debtor also releases any endorser or surety for the debt. They point out that all
cases cited by petitioner deal with bankruptcy proceedings vis a vis composition agreements and are inapplicable to the case at bar. Finally, they concede that a secret agreement was entered into with Brooks, but that such an agreement is unenforceable as a fraud upon the other creditors. Moreover, they argue such secret agreements contravene public policy, are unenforceable, and therefore Brooks has no priority over other trade creditors.
A composition agreement has been defined as "an agreement between an insolvent or embarrassed creditor and two or more of his creditors, whereby the creditors for some consideration, such as an immediate payment, agree to the discharge of their respective claims on the receipt of payment which is in a lesser amount than the amount actually owing on the claim." 13 Fla. Jur. 2d, Creditors Rights and Remedies s. 25. The executed agreement herein falls within the above definition, and accordingly the general rules governing the same must apply.
First, it is clear that once a composition agreement is voluntarily executed by a creditor, the creditor is then bound by such an agreement. Town of Dundee v. Pressgrove, 153 Fla. 671, 15 So.2d 488 (1943). Therefore, as a matter of law the debt owed to Six L's by Fair Chester was discharged. Welles-Kahn Co. v. Klein, 81 Fla. 524, 88 So. 315, on reh 81 Fla. 527, 88 So. 316 (1920). The next question is whether the discharge of Fair Chester also served to discharge the surety. Initially, it is noted that Subsection 604.21(9) provide no solace to petitioner, for it deals only with situations where a dealer is "involved in a bankruptcy proceeding." Because the composition agreement was entered into outside the framework of a formal bankruptcy proceeding, the rules governing compositions in bankruptcy do not apply. 2/ Further, the law is clear that a common law composition agreement, when properly executed, operates as a total discharge of claims against the debtor 13 Fla. Jur. 2d, Creditors Rights and Remedies, s. 27, and the surety on the debt is also discharged. See 15A Am. Jur. 2d, Composition with Creditors, s. 7, and cases cited therein. Therefore, it is concluded that by voluntarily executing a composition agreement outside the framework of a bankruptcy proceeding, petitioner's claim against six percent Six L's and its surety has been discharged. In reaching this conclusion, the undersigned has examined the cases cited by petitioner, and has found they either deal with debtors in bankruptcy
proceedings, or are factually distinguishable from the case at bar. 3/
Petitioner's final contention concerns the effect of the agreement between Fair Chester and Brook's upon the validity of the composition agreement. In general terms, Six L's contends that the agreement is known in the trade as a "secret agreement" and that it provided preferential treatment to Brooks over other creditors. Six L's argues, then, that the entire agreement is unenforceable and that it may proceed as if no such agreement existed. Neither counsel have cited any Florida decisions on this point and research by the undersigned has failed to disclose any. However, the most widely followed rule in other jurisdictions is that "a creditor not guilty of fraud may ignore and repudiate a general composition where another creditor has secretly obtained an undue advantage and a fraudulent preference in the composition, and may recover on the original claim." See 15A Am. Jur. 2d, Composition with Creditors s. 9, and cases cited therein. 4/ To establish a valid claim under these circumstances, a creditor must establish three elements: (1) that there was an agreement between the creditor and other creditors of the debtor to accept a pro rata share in full satisfaction of the entire indebtedness; (2) that there was an agreement between creditors, or at least the plaintiff and some of the other creditors, to accept such sum as a complete settlement of their claims; and (3) that there was a secret preference given by the debtor to one or more of his creditors to induce the latter to agree to the composition. Schmitt v. Schepp, 144 Kan. 809, 62 P2d 842. When these rules are applied to the case at bar, the record discloses that all three elements have been proven. Therefore, it is concluded that the composition agreement is not valid as to Six L's and that Six L's may recover from both the principal and the surety. Since the parties agree that
$29,437.40 is owed, both Fair Chester and Hartford are indebted to Six L's in this amount. Should Fair Chester fail to make payment, the surety company is liable to pay the indebtedness out of the posted bond. Subsection 604.20(8), Florida Statutes.
RECOMMENDATION
Based on the foregoing findings of fact and conclusions of law, it is
RECOMMENDED that Fair Chester Tomato Packers, Inc. pay Six L's Packing Company, Inc. $29,437.40. In the event the principal fails to or cannot pay the indebtedness, Hartford Accident and Indemnity Company shall pay said amount out of the surety bond posted with the Department of Agriculture and Consumer Services.
DONE and ORDERED this 24th day of May, 1985, in Tallahassee, Florida.
DONALD R. ALEXANDER
Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 24th day of May, 1985.
ENDNOTES
1/ The June 7 sale ($13,885.20) was made in Donaldson, Georgia and is beyond the scope of this proceeding.
However, as noted hereinafter, Six L's received partial payment on its claim and used that payment to cancel the Georgia debt plus a small part of the Florida debt outstanding. This leaves $29,437.40 owed.
2/ The distinction between the two is explained in Martin Furniture Co. v. Massey, 135 Tenn. 338, 186 S.W. 451 (1916) cited in petitioner's memorandum.
3/ The record is unclear as to whether Fair Chester ultimately filed for bankruptcy after the composition agreement was executed. However, even if it had, the composition agreement preceded any bankruptcy proceedings and the latter are accordingly irrelevant.
4/ The minority view is that even though the agreement to give a fraudulent or secret advantage is void, the composition agreement itself is not invalidated.
Respondents obviously believe the minority view to be the better rule.
COPIES FURNISHED:
Mark S. London, Esquire
P.O. Box 6220
Hollywood, FL 33081-0220
Arthur Slavin, Esquire
270 Madison Ave. New York, NY 10016
Steven G. Pazar, Esquire The Hartford
123 William St.
New York, NY 10038
Robert A. Chastain, Esquire Room 513, Mayo Bldg.
Tallahassee, FL 32301
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AGENCY FINAL ORDER
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STATE OF FLORIDA
DEPARTMENT OF AGRICULTURE AND CONSUMER SERVICES
SIX L's PACKING COMPANY, INC.,
Petitioner,
vs. CASE NO. 85-0409A
LB Case No. 85-0022
FAIR CHESTER TOMATO PACKERS, INC. AND HARTFORD ACCIDENT
AND INDEMNITY COMPANY,
Respondent.
/
FINAL ORDER
The Department of Agriculture and Consumer Services, by and through DOYLE CONNER, Commissioner of Agriculture, hereby adopts and incorporates by reference the Recommended Order of the Hearing Officer dated May 24, 1985, except in the Conclusions of Law, paragraph 2 of Count 3. on page 6, the next to the last sentence is amended to read as follows:
"Therefore, it is concluded that by voluntarily executing a composition agreement outside the framework of a bankruptcy proceeding, petitioner's claim against Fair Chester and its surety has been discharged."
A copy of the Recommended order is attached.
IT IS THEREFORE ORDERED that the Respondent pay to the Petitioner $29,437.40.
DONE AND ORDERED in Tallahassee, Florida, this 22nd day of August, 1985.
DOYLE CONNER
Commissioner of Agriculture
COPIES FURNISHED TO:
Mr. Joe Kight, Chief Bureau of License and Bond
Department of Agriculture and Consumer Services
Room 416, Mayo Building Tallahassee, Florida 32301
Mr. Donald R. Alexander, Hearing Officer Division of Administrative Hearings
The Oakland Building 2009 Apalachee Parkway
Tallahassee, Florida 32301
Department of Agriculture and Consumer Services
Clerk's Office
Room 515, Mayo Building Tallahassee, Florida 32301 Florida Administrative Law Reports
P. O. , Box 2309 Gainesville, Florida 32602
Nark S. London, Esquire Post Office Box 6220
Hollywood, Florida 33081-0220
Arthur Slavin, Esquire
270 Madison Ave. New York, NY 10016
Steven G. Pazar, Esquire
The Hartford, 123 William St. New York, NY 10038
Robert A. Chastain, General Counsel Department of Agriculture and
Consumer Services Room 515, Mayo Building
Tallahassee, Florida 32301
Docket for Case No: 85-000409
Orders for Case No: 85-000409
| Issue Date |
Document |
Summary |
|
Aug. 22, 1985 |
Agency Final Order
|
|
|
May 24, 1985 |
Recommended Order
|
Execution of composition agreement by creditors discharged all other creditor claims.
|
