1803. rupt has exhausted all his funds for their benefit, and has LEICESTER procured as much as he can to pay them with. versus ROSE. [Lord ELLEN BOROUGH, C. J. "It is admitted by the plaintiff, that if a further sum was to be obtained it would be bad; but this is only to give a better security for the same sum."] "This is something which the bankrupt could get at the time in order to pay his creditors, or secure to them the payment of their debts, and to which all the creditors are alike entitled. The fallacy of the distinction now made is, that it looks only to the state of the insol vent's affairs after the agreement is fully performed, and supposes that it will be performed; and then all the creditors being paid, none would be injured. But at the time of making the agreement the situation of the creditors is different. They expect to have the whole of their money, they agree to give time and take security for the payment of part of it, and then one is placed in a better situation than the rest by having security for the whole. Even in Feise v. Rindall the principle that one creditor should not be put in a better situation than another is clearly admitted, but that is very distinguishable from the present case; for the court was of opinion upon the facts of that case, that there was no fraud ; but here a fraud upon the creditors is expressly stated. For it cannot be doubted that those who refused to sign the deed until the plaintiff signed, apparently upon equal terms with them, would still have refused to sign if they had found that he obtained better terms.† *6 Term Rep. 146. + Some allusion was here made to a letter which had been read, but was not set out in his lordship's report, from which it was inferred that the plaintiff had considered himself as deluding the other creditors. In this letter he spoke of relying upon the defendant's honour, which, it was argued, implica a desire for secercy. Ia Smith v. Bromley,* Lord Mansfield, C. J. relied much upon the ground of oppression upon the friends of the bankrupt or his family, as well as the fraud on the creditors, and said, it was taking an unfair advantage of his friends. ERSKINE and WooD, contra. "This case is clearly within the case of Feise v. Randal,+ and differs from those which have been cited in principle. The ground upon which they went is, that in this sort of agreements, as the creditors do not insist upon the utmost rigour of the law, but are disposed to take less than their just demands, a person who comes into such an agreement shall not recover upon a subsequent agreement for a greater sum, because the first being for the benefit of the insolvent, of which the foundation is, that be shall be delivered from the rigour of having the whole demand exacted by his creditors, the insisting upon more is a fraud on the creditors, and a contravention of that agreement. But that is not the case here, and Smith v. Bromley does not fall within the same class of cases. But where this question has come directly before the court, that has been the principle laid down and adhered to by Lord Kenyon at all times. Sumner v. Bradys does not affect this case. Here it must be observed, there was no actual meeting of the creditors to release the insolvent, upon these terms, and if there is not, each man may make a distinct contract for himself. [Lord ELLENBOROUGH, C. J. "That is supposing he does not thereby induce other persons to sign."] "Non constat, that Rose entered into the agreement in consequence of any communication with the insolvent, and if a third person voluntarily give a security without the request or concurrence of the insolvent, there would be no obligation upon him to pay." [THE COURT. "Would not the friend Rose have had an action afterwards against the insolvent for money paid ""] Dougl. 670, n. * Dougl. 670, n. +6 T. Rep. 146. § 1 M. Bl. 647. 1803. LEICESTER versus Rose 1803. versus ROSE. "Then still the debtor is in a better situation; for he is LEICESTER not to be called upon for immediate payment; he is delivered from the severity of the creditor, and put upon the clemency of his friends; and the agreement is performed. But it would be extremely hard to say that every creditor must sive up as much of his debt as another, in all cases, in order to put the benevolence of all upon the same level; for that which would be only prudently generous in one, would be wrong in another. Here the plaintiff has a better right to security than others, for he refuses to sign because he conceives he has a collateral security. Here was no concert with the rest of the creditors when the deed was signed; and in Cockshott v. Bennett, Lord Kenyon, C.J. dwelt a great deal upon the fraud by varying from the agreement which was made in concert with the rest of the creditors." LAWRENCE, J. Does it appear in that case to be any thing more than implied, from all the creditors signing the same instrument ?" Lord ELLENBOROUGH, C. J. "Is not that the effect of all these agreements? The deed is signed upon the tacit general consent of all. Res ipsa loquitur. The act of signing the trust deed implies as much as a general meeting for the purpose. I was in Cockshott v. Bennett, and it was no fact in the case, that there was an actual assembly of the creditors. Lord Kenyon assumed it as a probable or apparent thing in the nature of all these cases. I own this is a case on which, from the firs statement of it, to the present time, I never entertained one particle of doubt. The question is, whether an agreement by which one creditor is to obtain for his debt a better security than another, when he has entered into an agreement with the rest of the creditors, importing an equality for all, is to be considered as valid in law? Now as the debt was not to be paid in monies numbered at the time, but by instalments, it made an essential difference, whether it was to rest on the security of the insolvent alone, or of some other person; and that difference apparently is between payment and non-payment. In Feise 1803. versus Russ. 7. Randall it is stated that there was no fraud, and we must therefore take it so. But is there no fraud effected LEICESTER here? Is there no actual purpose of fraud? The plaintiff is told at the time, that the creditors will not sign unless he does; and he uses it as a means of enforcing from the insolvent's friends another security, and then he sigas this deed, purporting that he has no other security, the other creditors at the same time signing in full simplicity, and supposing that all are alike. In many of the cases, such as Jackson v. Duchaire, there was more obtained from the debtor; but that seems an immaterial distinction, for the court always went on the ground of fraud upon the rest of the creditors, who relied on a mutuality in the agreement. Lord Kenyon said there that not even the feelings of the friends should be wrought upon. I am quite satisfied that he whose mind. abounding with all legal knowledge, was yet particularly well informed on this subject, would have decided this case shortly; and I am quite sure we should not have had the benefit of hearing this argued at the length at which it has been discussed. Feise v. Randall was decided only on motion; and, therefore, ought not to overturn the principles which were before relied on in the other cases. I do not go on the ground of acting on the compassion of friends, because I do not know, in that case, how far I may go, since it is difficult to say what is or is not obtained in that manner, when any security is obtained from the friends. Bromley v. Smith was decided upon the ground that the plaintiff ought to have' done that without any pecuniary inducement, which he refused to do, unless security was given for his debt. But this is a fraud upon the rest of the creditors." GROSE, J. "The question is, whether any fraud was worked upon the creditors? Now what was the agreement between the whole of the creditors? They agreed to take their debts by instalments, and the two last instalments were to be secured by the promissory notes of the insolvents; and if by holding out, the plaintiff gets a better security, this I think is a fraud upon the rest 1803. LEICESTER versus Rosz. of the creditors, because they would not probably have consented to the agreement without being in the same situation. Indeed, was it ever intended by the agreement that he should have been in a better situation than the rest of the creditors? No-for they say that they will not sign unless he has signed; that is, they will not sign without being in as good a situation as he. Feise v. Randal went off merely upon the first motion for a new trial, and Lord Kenyon in that case did not conceive that there was any fraud; but in this case there clearly is fraud; and therefore the plaintiff ought not to recover." LAWRENCE, J. made some observations on the facts of the case, and said, "It is clear that several of the creditors would not have signed without the plaintiff had signed. In Jackson v. Lomas,* BULLER, J. lays down as a rule, that a secret agreement made between the insolvent and some of the creditors, in order to induce the rest of the creditors to come into the composition, is void.' Is not that exactly this case? On the authority of that case, the trust deed might be considered as an agree ment that he (the plaintiff) would come in pari passu with the rest of the creditors, and this agreement with the defendant is a secret agreement to be put in a better situation than they were; which is void for the fraud." LE BLANC, J. "It is admitted, that if there is a fraud upon the creditors in this case, the agreement is void; and the contest has been merely, whether this is a fraud, it not being an agreement to obtain more money than the other creditors, but only to obtain security to be paid the same sum,when the other creditors have not a security. There is a fallacy in stating that as the criterion of fraud. It is just the same whether he (the plaintiff) is to receive more money, or whether he is to receive that which he thinks likely to produce more money in the end. This agreement is not strictly a deed of composition, because the party is to pay all the money due; it is rather a letter 4 T. Rep. 166. |