Story Case

On June 1, 1907, Reeve Hammon made a note payable to John Patch in one year. When the year was up, the note was not renewed nor did Hammon pay it. On June 3,1914, Patch recalled that the money was due him and requested Hammon for it. Hammon said:

"I suppose that you are aware that I am not compelled to pay this money, because the Statute of Limitations says that a claim that has not been renewed or judgment demanded in six years is void? But I want to do the honest thing, so I will pay you the money within the week".

At the end of the next week Patch sued Hammon for the money. Hammon defended on the ground of the Statute of Limitations. Patch replied that after the Statute had run, Hammon agreed to pay the amount. Hammon answered that this promise was gratutious without consideration and therefore not enforcible.

Which has the better case?

Ruling Court Case. Dusenbury Vs. Hoyt, Volume 53 New York Reports, Page 521

Hoyt, the defendant in this case, executed a promissory note payable to the order of Dusenbury, the plaintiff. Before the note was due, Hoyt was declared a bankrupt by judicial proceedings. The effect of this proceeding was to cancel all the debts which Hoyt had previously owed. But after he had received his discharge, he promised Dusenbury that he would pay the note, nevertheless. But when the note was presented for payment he changed his mind again and refused to settle it. Dusenbury then instituted this action against him for the recovery of the amount due under the note.

It was insisted by Hoyt that he was not liable because the new promise to pay the note was without any consideration.

Decision

In this case the effect of the decree in bankruptcy was to prevent any action from being brought against Hoyt on debts owed by him, previous to the decree. It did not entirely destroy the obligation to pay, but it gave him a defense to an action thereon; or, in other words, it deprived the creditor of the right to sue. But, after receiving his discharge, and then making a new promise to pay, the protection of the law was removed; he no longer had the defense and the creditor was reinvested with full right to sue on the note.

Mr. Justice Andrews said in part: "The 34th section of the bankrupt law declares that a discharge in bankruptcy releases the bankrupt from all debts provable under the act, and that it may be pleaded as a full and complete bar to all suits brought thereon. The legal obligation of the bankrupt is by force of positive law, discharged, and the remedy of the creditor existing at the time the discharge was granted to recover his debt by suit is barred. But the debt is not paid by the discharge. The moral obligation of the bankrupt to pay it remains. It is due in conscience, although discharged in law, and this moral obligation, uniting with a subsequent promise by the bankrupt to pay the debt, gives a right of action".

Accordingly, judgment was given for Dusenbury in this action.

Ruling Law. Story Case Answer

Under certain circumstances a person may be adjudicated a bankrupt. All his assets are used in paying his debts ratably; if the assets are insufficient to pay all his debts, those unpaid, or the parts remaining unpaid, are said to be discharged. Also, if a creditor does not sue his debtor on a claim within a certain time, usually six years, the claim is said to be barred by the Statute of Limitations. In both cases, the debt is still morally due the creditor; but for reasons of policy the law says that an action may not be brought thereon ; the remedy alone is barred, without extinguishing the debt. The debtor may if he chooses, waive this protection given to him by the statutes. If he makes any promise stating that he will pay the obligation, this amounts to a waiver and he may thereafter be compelled to pay the obligation. In the Story Case, Patch can recover on the note.