Case ID: nh_16/html/0254-01.html
Source: Caselaw Access Project
Author: {"author": "Gilchrist, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Page & a. v. Carter.
    If a debtor, in order to secure the concurrence of a creditor to a composition, pay or secure to him a sum of money, he does not thereby vacate such composition, nor forfeit the benefits which i't purports to provide for him, in releasing him from the claims of the several parties to the arrangement.
    Assumpsit on a promissory note dated October 28,1826, for $1000, made by the firm of Joel Carter & Co. of which the defendant was a member, and payable to the plaintiff on demand.
    The writ is dated January 14, 1841.
    
      Plea, the general issue with a brief statement of the statute of limitations.
    For the purpose of taking the case out of the operation of the statute of limitations, the plaintiff proved that on the first day of May 1827 said firm made an assignment of their property for the benefit of their creditors, and that the plaintiffs became a party to the assignment. By its terms the creditors’ parties thereto released and discharged their respective claims against the said debtors, excepting their proportion of the assets which they might receive by virtue of the assignment.
    The plaintiffs further proved that after they had become parties to the assignment, said firm induced certain other creditors to become parties to the same by giving them their promissory notes for some part of their respective debts, and offered evidence tending to show that this was without the consent or knowledge of the plaintiff, and that they had no notice of that fact until within six years prior to the commencement of this action.
    "Upon the foregoing evidence, the court ordered a verdict for the defendant.
    If the Superior Court shall be of opinion that said direction is right, judgment is to be entered on the verdict ; otherwise the verdict is to be set aside and a new trial granted.
    Farley, with whom was Parker, for the plaintiff.
    Those who came in under the compromise were to have each their proportion of the property. The greater the number that came in, the smaller the dividend. If the defendant by any unfair means induced those to come in who otherwise would not have done so, this was a fraud upon the others who signed.
    All securities given for such consideration would be void. 1 B. & Al. 1; 2 T. R. 768; 3 T. R. 551; 4 T. R. 166 ; 1 H. Bl. 647 ; 2 Bing. 443.
    
      The party negotiating for relief is bound to act in perfect good faith to all concerned. 4 E. 372; Howden v. Haigh, 11 Ad. & E. 1033.
    The statute begins to run from the time the fraud is discovered. 3 P. W. 143; 2 Doug. 655; 3 Mass. 201; and a fraudulent concealment of the fact that a cause of action had accrued, is a good replication to a plea of the statute of limitations. 1 Pick. 435 ; 3 Pick. 74; 9 Pick. 212 ; 244, 245. If the assignment were void, so that the note was not discharged by the release, this fraud keeps the note alive ; if not, the defendant is a gainer by what the law calls fraud.
    The case of Howden v. Haigh, 11 Ad. & E. 1033, inclines to the doctrine that the deed of composition would be void.
    
      Pierce, and Sawyer, for the defendant.
   Gilchrist, J.

It is perfectly well settled, that a note given by a debtor for the purpose of inducing a creditor to consent to a composition, is voidable at law or in equity. One reason assigned for this rule is, that the parties who release their respective claims act together for the common purpose of setting the debtor free from his embarrassments, and each is induced to forego his own claim or a certain part of it, by the consideration that such a benefit shall be fully secured to the debtor; a thing which he would not do upon any inducement short of that; and any creditor who takes from the debtor a note or other security for any thing beyond the composition, defeats its object and the intentions of the several parties to it. Lord Kenyon, C. J., in Cockshott v. Bennett, 2 T. R. 765.

.Another reason is that which is assigned by Mr. Justice Buller in the same case, that the debtor is supposed in such cases to act under the influence of distress and constraint. In Smith y. Bromley, cited by that judge and reported in a note to Jones v. Barkley, Doug. 695, the same reason is more pointedly stated by Lord Mansfield, whose opinion would have the effect of extending the principle so as to avoid securities entered into by third persons for such a purpose. "If any near relation is induced to pay the money for the bankrupt, it is taking an unfair advantage and torturing the compassion of his family.” This class of persons, as well as sureties, are considered as being comprehended by the rule. Lewis v. Jones, 4 B. & C. 506, and note in which the cases in the English courts are cited.

But none of these cases, nor the reasons upon which they are based, go to the extent of avoiding the composition, by reason of any such unfair preference obtained by a creditor through a secret agreement with the debtor. The rule appears to have been made for his benefit and protection, rather than for the sake of any advantage to the creditors at large; their only interest in the faithful execution of the agreement being that which they justly have in the absolute and full achievement of their purpose in his behalf. To hold therefore that the debtor should be charged with complicity in a fraudulent transaction designed to defeat the measures which have been instituted for his relief, would be to engraft upon that rule of law, an alien branch that would conflict with its beneficial purposes.

The case of Howden v. Haigh, 11 Ad. & E., which has been cited as tending to favor the proposition that such a fraudulent act would defeat, by reason of the debtor’s concurrence in it, the benefits to which ho would otherwise be entitled under the composition, does not appear to sustain it. The point which is there decided, and to which it is there cited by the writers, is that the fraud destroys the security which the creditor takes for the sum to wbicb be is fairly entitled and tbe excess also. Chitty on Contracts 460.

These cases of composition between a debtor and bis creditor, must not be confounded with those wbicb have arisen under tbe English bankrupt laws, in wbicb it has been held that money paid or secured to a creditor to induce him to sign tbe bankrupt’s certificate, would have tbe effect of avoiding tbe certificate, even if such payment or security was made by a stranger, and without tbe privity of tbe bankrupt. These cases proceed upon tbe ground that tbe policy of tbe statute, wbicb in terms vacated certificates pi’ocured through such influences, required that the creditors should act without such a bias. “ Tbe test wbicb tbe legislature requires, is tbe unbiased approbation of the creditors.” “ Although a third person shall not be punished for tbe fraud of another, he shall not avail himself of it.” Robson v. Calze, Doug. 227. Between these two classes of cases there is obviously no analogy.

"We are. unable from the eases wbicb have been examined, or from tbe reasons upon wbicb they are in general founded, to derive any such doctrine as that which is propounded by tbe plaintiffs in this case. There must therefore be-.

Judgment on the vexdict.