STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

J. R. BROOKS AND SONS, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 85-0332A

) 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 officers, Donald R. Alexander, on April 18, 1985, in Miami, Florida.

APPEARANCES

For Petitioner: Thomas R. Tedcastle, Esquire

315 South Calhoun Street, Suite 880 Tallahassee, Florida 32301

For Respondents: Arthur Slavin, Esquire

270 Madison Avenue

New York, New York 10016 BACKGROUND

This matter arose when petitioner, J. R. Brooks and Sons, Inc., filed a complaint with the Department of Agriculture and Consumer Service alleging that respondent, Fair Chester Tomato Packers, Inc., was indebted to petitioner in the amount of $25,039 for six loads of "Pony Limes" sold to respondent in February, March, and April, 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 December 11, 1984. The agency concluded that disputed facts existed, and 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 offered petitioner's exhibits

1. ; all were received in evidence. Respondents offered respondents' exhibit 1 which was 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 14, 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 $25,039 to $14,899.34. Accordingly, the issue herein is whether respondents are indebted to petitioner in that amount for six shipments of agricultural products sold to respondent Fair Chester in February, March and April, 1984.

   
   

   Based upon all of the evidence, including stipulation of counsel the following findings of fact are determined:

   
   

   FINDINGS OF FACT

   
   

   1. Petitioner, J. R. Brooks and Sons, Inc. (Brooks), is in the business of selling agricultural products. Its offices are located in Homestead, Florida.

      
      

   2. Respondent, Fair Chester Tomato Packers, Inc. (Fair Chester), is a licensed agriculture dealer under Chapter 604, Florida Statutes. Its offices are in Mamaroneck, New York. 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 Fair Chester. In this regard, it has filed a $50,000 surety bond underwritten by respondent, Hartford Accident and Indemnity Company (Hartford).

      
      

   3. Between February and April, 1984, Brooks sold six shipments of `Pony Limes" to Fair Chester for a price of

      $25,039. Shortly thereafter, Fair Chester experienced financial problems and was unable to pay Brooks and other trade creditors. Because of this the creditors formed a committee in an effort to secure payment of their claims. A composition agreement was eventually 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 one-third of its claim "in full payment and settlement thereof, and provided further 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.

      
      

   4. On or about September 2, 1984, Brooks filed a complaint against respondents with the Department which was pending when the offer to participate in the composition agreement was made. Brooks initially refused to accept the composition agreement. Because Brooks' acquiescence was necessary in order to achieve the 95 percent participation, Fair Chester, through its counsel advised Brooks by letter dated November 1, 1984 that its "acceptance of the Composition Agreement . . . shall be without prejudice to the complaint against (respondents) before the Department of Agriculture and Consumer Services of the State of Florida." After receiving this letters Brooks agreed to execute the agreement and did so on November 7, 1984. Accordingly, it is found that it was the intention of the parties to allow Brooks to maintain the action herein. Thereafter, in accordance with the agreement, Fair Chester issued a check in the amount of $7,449.66 to Brooks on November 9, 1984, which represented one-third of its total claim. 1/ The check was endorsed by Brooks and deposited in its bank account. It has never rescinded that agreement.

      
      

   5. The letter of November 1, 1984, was not disclosed by Fair Chester to Hartford or any other trade creditor who executed the agreement. However, there was no effort on the part of Brooks to have the letter remain secret.

      
      

      CONCLUSIONS OF LAW

   6. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida Statutes.

      
      

   7. Petitioner concedes it executed the composition agreement, received and cashed a check satisfying one-third of its outstanding claim, and has never rescinded the agreement. Nonetheless, it argues that the letter of November 1, 1984, is a part of its contractual agreement with Fair Chester and that the agreement and letter constitute the intended agreement between the parties.

      That is, the release of Brooks was conditioned not only upon the payment of one-third of the amount owing, but also that Brooks' complaint herein would be excluded from the release. Therefore, it claims it can proceed in an action against the bond. Respondents view the letter of November 1, 1984 as a secret agreement giving preference to Brooks over other trade creditors. As such, they contend it is void and unenforceable as a fraud upon the other creditors and hence Brooks cannot enforce its terms. Finally, they argue the release of the principal debtor (Fair Chester) by Brooks also releases the surety (Hartford), and therefore no claim lies against the latter.

      
      

   8. 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 25. The executed agreement herein falls within the above definition, and accordingly the general rules governing the same must apply.

      
      

   9. 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 Brooks 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. In this regard, 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 27, and the surety on the debt is also discharged. See 15A Am. Jur. 2d Composition with Creditors 7, and cases cited therein. But Brooks contends that it was the intention of the parties to exclude from the operation of the release the present action. It asserts that this intent is embodied in the letter of November 1 which must be read together with the composition agreement. It cites the cases of Brown v.

Financial Services Corp., International, 489 F.2d 144 (5th Cir. 1974) and J.M. Montgomery Roofing Co. v. Fred Howlands, Inc., 98 So.2d 484 (Fla. 1957) for the proposition that a contract may be embodied in more than one document, and that the two separate writings herein are to be construed together. Finding this principle to be applicable, it is concluded that it was the intention of the parties to allow Brooks to proceed against the bond.

However, the matter of the secret agreement must be addressed, for it affects the right of Brooks to maintain this action. There being no Florida cases on point, reference to other authority and decisional law must be made. It is well settled that a composition agreement is based upon equality and requires the utmost good faith between the debtor and his creditors. This principle has been succinctly summarized as follows:

. . . It is a gross deception upon other creditors if the signature of one or more of the creditors is obtained by secret bargains or obligations granting them more favorable terms than the general scope and provisions of the composition agreement will warrant.

Therefore a secret agreement which induces a creditor to agree to a composition by the promise of a preference or of some undue advantage over the other creditors is utterly repugnant to the composition agreement, and, from its fraudulent nature is void and will be set aside at the suit of any of the par- ties. Such an agreement will not be enforced against the debtor despite the general rule which prevents a person from taking advantage of a wrong done to others in which he parti- cipated. (Emphasis added) 15A Am. Jur. 2d, Composition with Creditors 8.

Applying the foregoing principle to the facts herein, it is concluded that Brooks' acceptance of the composition

agreement was obtained only by granting it more favorable terms than other creditors, that this arrangement was not disclosed to other creditors, and that Brooks is now foreclosed from taking advantage of the special terms.

Therefore, its action must fail.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of lawn, it is

RECOMMENDED that the complaint of J. R. Brooks and Sons, Inc. a against respondents be DISMISSED with prejudice, and its claim against them DENIED.

DONE and ORDERED this 3rd day of June, 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 3rd day of June, 1985.

ENDNOTE

1/ Although the complaint alleges that a total of $25,039 was originally owed, petitioner filed a claim in the composition agreement for only $22,349 and now concedes that this is the appropriate figure.

COPIES FURNISHED:

Thomas R. Tedcastle, Esquire

315 S. Calhoun St., Suite 880 Tallahassee, FL 32301

Arthur Slavin, Esquire

270 Madison Ave. New York, NY 10016

Stephen G. Pazar, Esquire The Hartford

123 William St.

New York, NY 10038

Robert A. Chastain, Esquire Room 513, Mayo Bldg.

Tallahassee, Florida 32301

Docket for Case No: 85-000332

Orders for Case No: 85-000332