Case Name: David Solinger, plaintiff and appellant, agt. Edward Earle, defendant and respondent
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1880-11
Citations: 60 How. Pr. 116
Docket Number: 
Parties: David Solinger, plaintiff and appellant, agt. Edward Earle, defendant and respondent.
Judges: 
Reporter: Howard's Practice Reports
Volume: 60
Pages: 116–121

Head Matter:
COURT OF APPEALS.
David Solinger, plaintiff and appellant, agt. Edward Earle, defendant and respondent.
Composition agreement—Effect of a secret agreement to pay one of the cred- . itbvs more tha/n his pro rata share—Note given under such secret agreement cannot he enforced.
If a composition agreement provides for a pro rata payment to all the creditors of a debtor, a secret agreement to pay one of the creditors more than his pro rata share to induce him to unite in the composition is a frand upon the other creditors. It violates the principles of equity ‘ and the mutual confidence between creditors. A note or other security given under such a secret agreement cannot be enforced.
Put if a negotiable note be given by a friend of the insolvent, not related to him by blood, the friend is a mere volunteer; and if the friend’s note be transferred by the payee to an innocent holder, to whom the friend is obliged to pay it, he cannot, under such circumstances, Recover back; the money paid.
Decided November, 1880.
Appeal from a judgment rendered by the general term of the Mew York superior court.
Abraham Klimg•, for plaintiff and appellant.
Wm. M. Ivens. for defendant and respondent.

Opinion:
Andrews, J.
The plaintiff, to induce the defendants to unite with the other creditors of -Newman & Bernhard in a composition of the debts of that firm, made a secret bargain with them to give his negotiable note for a portion of this debt beyond the amount to be paid by the composition agreement. He gave his note pursuant to the bargain, and thereupon the defendants signed the composition. The defendants transferred the note before due to a bona fide holder, and the plaintiff having been compelled to pay it brings this action to recover the money paid.
The complaint alleges that the plaintiff was the brother-in-law of Hewman, and entertained for him a natural love and affection and was solicitous to aid him in effecting the compromise; and that the defendants knowing the facts and taking an unfair advantage of their position extorted the giving of the note as a condition of their becoming parties to the composition.
We think this action cannot be maintained. The agreement between the plaintiff and the defendants to secure to the latter payment of a part of their debt in excess of the ratable proportion, payable under the composition, was a fraud upon the other creditors. The fact that the agreement to pay such excess was not made by the debtor, but by a third person, does not divest the transaction of its fraudulent character. A composition agreement is an agreement as well between the creditors themselves as between the creditors and their debtor. Each creditor agrees to receive the sum fixed by the agreement in full of his debt. The signing of the agreement by one creditor is often an inducement to the others to unite in it. If the composition provides for a pro rata payment to all the creditors, a secret agreement by which a friend of the debtor undertakes to pay to one of the creditors more than his pro rata share, to induce him to unite in the composition, is as much a fraud upon the other creditors as if the agreement was directly between the debtor and such creditor. It violates the principle of equity and the mutual confidence as between creditors upon which the agreement is based, and diminishes the motive of the creditor, who is a party to the secret agreement, to act in view of the common interest in making the composition. Fair dealing and common honesty condemns such a transaction. If the defendants here were plaintiffs seeking to enforce the note it is clear that they could not recover (Cockshott agt. Bennett, 2 Term R., 763 ; Licester agt. Rose, 4 East., 372). The illegality of the consideration upon well settled principles would be a good defense. The plaintiff, although he was cognizant of the fraud and an active participator in it, would, nevertheless, be allowed to allege the fraud to defeat the action, not, it is true, out of any tenderness for him, but because courts do not sit to give relief by way of enforcing illegal contracts on the application of a party to the illegality. But if he had voluntarily paid the note he could not, according to the general principle applicable to executed contracts void for illegality, have maintained an action to recover back the money paid. The same rule which would protect him in an action to enforce the note would, in case the note had been paid, protect the defendants in resisting an action to recover back the money paid upon it (Nellis agt. Clark, 4 Hill, 429).
It is claimed that the general rule that a party to an illegal contract cannot recover back money paid upon it does not apply to the case of money paid by a debtor, or in his behalf, in pursuance of a secret agreement, exacted by a creditor in fraud of the composition, and the cases of Smith agt. Bromley (2 Doug., 696), Smith agt. Cuff (6 M. & S., 160) and Atkinson agt. Denby (7 H. & N., 934) are relied upon to sustain this claim. In Smith agt. Bromley the defendant, being the chief creditor of a bankrupt, took out a commission against him, but afterwards finding no dividend likely to be made refused to sign the certificate unless he was paid part of his debt, and the plaintiff, who was the bankrupt's sister, having paid the sum exacted, brought her action to recover back the money paid, and the action was sustained. Lord Mansfield, in his judgment, referred to the statute (5 Geo., 11, chap. 30, sec. 11) which avoids all contracts made to induce a creditor to sign the certificate of the bankrupt, and said, " the present case is1 a case of a transgression of a law made to prevent oppression, either on the bankrupt or his family, and the plaintiff in the case of a person pressed, from whom money has been extorted, and advantage taken of her situation and concern for her brother; and, again, if any near relation is induced to pay the money for the bankrupt, it is taking an unfair advantage and torturing the compassing of his family."
In Howson agt. Hancock (8 Term R., 575) lord Kenyon said that Smith agt. Bromley was decided on the ground that the money had been paid by a species of duress and oppression, and the parties were not in pari delieto, and this remark is fully sustained by reference to lord Mansfield's judgment. Smith agt. Cuff was an action brought to recover money paid by the plaintiff to take up his note given to the defendant for the balance of a debt owing by the plaintiff, which was exacted by the latter as a condition of his signing with the other creditors a composition. The defendant negotiated the note and the plaintiff was compelled to pay it. The plaintiff recovered. Lord Ellenbobough said : " This is not a case of jpar delictum, it is oppression on the one side and submission on the other, it never can be predicted as par delietum where one holds the rod and the other bows to it."
Atkinson agt. Denby was the case of money paid directly by the debtor to the creditor. The action was sustained on the authority of Smith agt. Bromley and Smith agt. Duff. It is somewhat difficult to understand how a debtor, who simply pays his debt in full, can be considered the victim of oppression or extortion, because such payment is exacted by the creditor as a condition of his signing a compromise, or to see how both the debtor and creditor are not in pari delieto {See remark of Park, B., in Higgins agt. Pitt, 4 Exch., 312). But the cases referred to go no further than to hold that the debtor himself, or a near relative who, out of compassion for him, pays money upon the exaction of the creditor, as a condition of his signing a composition, may he regarded as having paid under duress, and as not equally criminal with the creditor. These decisions cannot be upheld on the ground simply that such payment was against public policy. Doubtless the rule declared in these cases tends to discourage fraudulent transactions of this kind, but this is no legal ground for allowing one wrong-doer to recover back money paid to another in pursuance of an agreement between them, void as against public policy.
It was conceded by lord Mansfield in Smith agt. Bromley, that when both parties are equally criminal against the general laws of public policy, the rule is jporticor est conditio defendentis, and lord Kenton in Howson agt. Hancock, said that there is no case where money has been actually paid by one of two parties to the other upon an illegal contract, both being yarticeps criminis, an action has been maintained to recover it back.
It is laid down in Cro. Jac. (187) that " a man shall not avoid his deed by duress of a stranger, for it hath been held that none shall avoid his own bond for the imprisonment or danger of any one than himself only." And in Robinson agt. Gould (11 Cush., 57) the rule was applied, where a surety sought to plead his own coercion as growing out of the fact that his principal was suffering illegal imprisonment, as a defense to an action brought upon the obligation of the surety given to secure his principal's release. But the rule in Gro. Jac. has been modified so as to allow a father to plead the duress of a child, or a husband the duress of his wife, or a child the duress of the parent (Wayne agt. Sands, 1 Freeman, 351; Bayley agt. Clare, 2 Browne, 276; 1 Rol. Abr., 687; Jacob's Law Dict., "Duress").
We see no ground upon which it can be held that the plaintiff in this case was not in yarn delictum in the transaction with the defendants. So far as the complaint shows, he was a volunteer in entering into the fraudulent agreement. It is not even alleged that he acted at the request of the debtor. And in respect to the claim of duress, upon which Smith agt. Bromley was decided, we are of opinion that the doctrine in that, and the subsequent cases referred to, can only be asserted in behalf of the debtor himself, or of a wife or husband, or near relative of the blood of the debtor, who intervenes in his behalf, and that a person in the situation of the plaintiff, remotely related by marriage with a debtor, who pays money to a creditor to induce him to sign a composition, cannot be deemed to have paid under duress, by reason simply of that relationship or of the interest which he might naturally take in his relative's affairs.
Note.—The court helow distinguished this case from Gilmour agt. Thompson (49 Sow. Pr., 198), as follows : "In Gilmour agt. Thompson the plaintiff had a right of action, although the transaction was illegal, because he was the debtor, and so, in the estimate of law, the victim of oppression. In the present case the plaintiff was a party to' the illegal transaction, hut not a victim. His participation in it was voluntary, &c. " (See report of case in 45 S. T. Superior Court Peps., 604). The court of appeals seem to have decided the appeal upon this principle.—[Rep.
The plaintiff cannot complain because the defendants negotiated the note, so as to shut out the defense which he would have had to it in the hands of the defendants. The negotiation of the note was contemplated when it was given, as the words of the negotiability show.
It is possible that the plaintiff, while the note was held by the defendants, might have maintained an action to restrain the transfer, and to compel its cancellation (Jackson agt. Mitchell, 13 Ves., 581). But it is unnecessary to determine that question in this case. The plaintiff having paid the note, although under the coercion resulting from the transfer, the law leaves him where the transaction has left him.
The judgment should be affirmed..
All concur.