§ 105. Preference to promote Discharge or Composition. Another important application of this rule of equality is that money paid or security given to a creditor to induce him to assent to the bankrupt's discharge is a fraud on the other creditors which will avoid the discharge. It was held at one time that such an advantage, though it should be given by a friend or enemy without the privity of the bankrupt, was a fraud on the law. Lord Eldon thought that some of the decisions had gone too far in this direction. "I feel it very difficult," he said, "upon attention to any principle that has furnished this rule, to support the doctrine, that a bankrupt is not to have his certificate, if, though he would abhor such means of procuring it, some too active friend has advanced a sum of money, to obtain it; in a case perhaps, when he might have obtained it honestly by other means."3 And the same eminent judge permitted a bankrupt to have a certificate so obtained cancelled, and to apply again.* If it can be clearly shown that the bankrupt was not privy to the fraud, justice requires that he should not suffer for it.5 But, in general, any payment or security given by any one must be presumed to be given on behalf of the bankrupt. And any assent so obtained, which may have misled others, would in itself operate as a fraud, and, even if the bankrupt were not privy to the arrangement, would probably vitiate the discharge. Such a fraud vitiates the discharge whether rell, 11 Allen, 97; Pierce v. Evans, 61 land v. Palmer, 1 Bos. & P. 95; Ex parte Hall, 1 Rose, 2, 17 Ves. 63; Ex parte Butt, 10 Ves. 359; Smith v. Bromley, Doug. 696, note; Phillips v. Dicas, 15 East, 248. 3 Ex parte Butt, 10 Ves. 359. See Ex parte Hall, 1 Rose, 2, 17 Ves. 63. 4 Ex parte Harrison, 1 Christian, 2d ed., p. 343. 5 See Ex parte Milner, 15 Q. B. D. 605; Ex parte Briggs, 2 Lowell, 389, Fed. Cas. No. 1868. 6 Re Whitney, 2 Lowell, 455, Fed. Cas. No. 17,580; Bell v. Leggett, 7 2 Robson v. Calze, Doug. 228; Hol- N. Y. 176. infra, § 476. there is anything expressed in the statute upon the subject or not.1 It has sometimes been held that the mere payment to induce a withdrawal of opposition will not avoid a discharge unless there is evidence that the opposition was well founded.2 But the better opinion is that a payment made by the debtor himself, or in his behalf with his privity, is conclusive evidence that there was some occasion to fear a successful opposition, and it therefore avoids the discharge.3 Another reason sometimes given is that creditors are morally bound not to oppose a discharge without good cause, and that a promise of money to instigate them to do their duty is not only without consideration, but tainted with positive illegality. And any agreement by which the assignee or a creditor undertakes to forego the bankrupt's examination is void, though the consideration is money paid to the assignee for all the creditors, and there is no evidence that any loss has been sustained by them from the lack of an examination.5 § 106. Preference in Compositions. In compositions, whether made in court by virtue of some statute, or by arrangement in the country, the rule is the same, provided: 1. The arrangement purports to be an equal one for the ben 1 Horn v. Ign, 4 B. & Ad. 78. Of course, if the terms of a particular statute are relied on, the case must come within it. Taylor v. Wilson, 5 Ex. 251, explained in Hall v. Dyson, 17 Q. B. 785, and compare Davis v. Holding, 11 A. & E. 710, with Davis v. Holding, 1 M. & W. 159; and see Belcher v. Sambourne, 6 Q. B. 414, and Ex parte Green, 1 Dea. & Ch. 230; Waite v. Harper, 2 Johns. 386; Bruce v. Mullikin, 4 Johns. 410; Yeomans v. Chatterton, 9 Johns. 295; Blasdel v. Fowle, 120 Mass. 447. 2 Chamberlin v. Griggs, 3 Denio, 9; Fox v. Paine, 10 Ala. 523. See infra, § 478. Sumner v. Brady, 1 H. Bl. 647; Jackson v. Davison, 4 B. & Ald. 691; Bruce v. Lee, 4 Johns. 410; Wiggin v. Bush, 12 Johns. 306; Tuxbury v. Miller, 19 Johns. 311; Hall v. Dyson, 17 Q. B. 785; Coates v. Blush, 1 Cush. 564; Bell v. Leggett, 7 N. Y. 176; Marble v. Grant, 73 Maine, 423. See remarks of the judges in Smith v. Bromley, Doug. 696, note; Ex parte Joseph, 18 Ves. 340; Dexter v. Snow, 12 Cush. 594. Nerot . Wallace, 3 T. R. 17; Murray v. Reeves, 8 B. C. 421; Gould v. Williams, 4 Dowl. P. C. 91; Hall v. Dyson, 17 Q. B. 785; Dexter v. Snow, 12 Cush. 594. See Staines v. Wainwright, 6 Bing. N. C. 174. But a payment of all the creditors in full relieves the debtor and purges the fraud, and an agreement on such consideration may be valid. Kaye v. Bolton, 6 T. R. 134. efit of all creditors alike; and 2. The preference of the particular creditor is secret. § 107. Creditors may prove if the Composition is set aside.When a composition deed is set aside in favor of the assignees in bankruptcy, the creditors who have signed it can prove their debts, since the trusts were not preferences. The trustees would not usually be allowed anything for their services,1 though they might in some cases be reimbursed their actual expenses. Such deeds are usually made upon the condition. that all creditors shall assent; and if a trustee should have fully executed the trusts and distributed the assets, supposing that all had come in, it is doubtful whether the assignee could recover them of him. § 108. Rights of Debtor under a Void Composition. Whether the debtor can avail himself of this superiority of position will depend on how far the contract has been executed. He cannot call upon any court to carry out the corrupt bargain; and though the creditor's release is held to bind him, the debtor cannot force him to surrender securities which he lawfully held before the date of the composition, though they were agreed to be surrendered, or to do any other act left unexecuted; and so it may happen that the preferred creditor will recover his whole debt if the release which he has given was not absolute. It has been held that the creditor cannot set up that he was fraudulently induced to make the fraudulent release, because the whole transaction is single, and all tainted with the fraud. But this has been doubted.4 § 109. Voluntary Payments after Lapse of Time. Although a secret payment of money to induce a creditor to accept a composition may be recovered back, yet if the payment is voluntarily made, after a lapse of time, in fulfilment of the void 1 Bartlett v. Bramhall, 3 Gray, 257. 2 Brown v. Coggeshall, 14 Gray, 134. 8 Higgins v. Pitt, 4 Ex. 312; Smith v. Owens, 21 Cal. 11; Stuart v. Blum, 28 Penn. St. (4 Casey) 225; Downs v. Lewis, 11 Cush. 76. 4 Mallalieu v. Hodgson, 16 Q. B. 689. See s. c. in equity, Ex parte Oliver, 4 De G. & Sm. 354; and see contra, Elfelt v. Snow, 2 Sawyer, 94, Fed. Cas. No. 4342; Armstrong v. Mech. N. Bank, 6 Biss. 520, Fed. Cas. No. 545. able promise, it cannot be recovered back on the familiar principle applicable to voluntary payments.1 It is partly for this reason, perhaps, that no case can be found in which the debtor has recovered back the amount of the composition itself. And A mere exchange of securities, or a promise to pay an entire sum, of which a part was voidable on this account will not purge the illegality. If the creditor has negotiated a note tainted with this fraud, and the indorsee has forced the debtor to pay it, he may recover the amount of the creditor. though a third person cannot recover money which he has paid for the debtor's release, it has been intimated that if the debtor has been forced to pay the composition notes by a bona fide holder, he may, perhaps, recover of the creditor the amount which the third person has paid.5 A written promise made two years after the statutory composition, and after a second discharge in bankruptcy, has been held bad, if made in pursuance of a fraudulent oral agreement. § 110. Composition failing, the Original Debt may be recovered. If the composition falls through, and bankruptcy occurs, the assignees, as we have seen, can recover any securities secretly given to the preferred creditor. But the debtor himself remains liable for the original debt, and therefore he cannot recover property which he may have conveyed as security. And where the composition had become void by failure to pay the last instalment, a creditor who had secretly received an 1 Wilson v. Ray, 10 A. & E. 82; Ward v. Bird, 5 C. & P. 229, explained in Bradshaw v. Bradshaw, 9 M. & W. 29; Viner v. Hawkins, 9 Ex. 266; but see Re Lenzberg's Policy, 7 Ch. D. 650. [See Wilson v. Boylston Bank, 170 Mass. 9, for a case where the debtor sued a creditor for money paid him by the assignee to induce him to assent to a composition.] 2 Clay v. Ray, 17 C. B. N. s. 188; Geere v. Mare, 2 H. & C. 339; Mare v. Sandford, 1 Giff. 288; Mare v. Warner, 3 Giff. 100; Mare v. Earle, ib. 108. 3 Smith v. Cuff, 6 M. & S. 160; Horton v. Riley, 11 M. & W. 492. 4 Solinger v. Earle, 82 N. Y. 393. 5 Bradshaw v. Bradshaw, 9 M. & W. 29. 6 Tirrell v. Freeman, 139 Mass. 297; contra. Trumball v. Tilton, 21 N. H. 128. 7 Supra, § 109. 8 Davis v. Holding, 11 A. & E. 710; Walker v. Mayo, 143 Mass. 42; Brookmire v. Bean, 3 Dillon, 136, Fed. Cas. No. 1942, but doubted by the learned judge in a note to that case. amount equal to the whole composition was not permitted to prove in bankruptcy in competition with the other creditors.1 § 111. Secured Creditors. — It is always the practice in deeds of composition to reserve all rights of the creditors to securities which they hold upon the debtor's property, and to give them their share of the composition only on the amount of debt above the value of the security, as in bankruptcy. If this precaution is omitted, and an absolute release is given, the creditor must relinquish his security. It has been held that the reservation should be known to all creditors, or at least within their means of knowledge. These last decisions are of doubtful soundness, for no creditor should be presumed to give up a valid and legal advantage; and accordingly the courts are unwilling to construe the deed in such a way as to destroy the security if it can be avoided. A secret stipulation by the debtor that the security shall realize a certain sum is, of course, void.4 Attachments on mesne process in New England are usually relinquished, for the reason that they are dissolved by bankruptcy, and therefore when the creditors prefer a composition, they must be content to take what they would receive in bankruptcy.5 § 112. Sureties and Guarantors. Indorsements, guarantees, and undertakings of third persons for the debt of another are sometimes called securities, as indeed are bills and notes of the debtor himself. "Securities" is not used in this sense in the preceding section. Sureties, etc., are discharged by the discharge of the principal debtor for wholly different reasons from those just now considered. But the creditors, in signing a composition, may expressly reserve all rights against 354. 1 Ex parte Oliver, 4 De G. & Sm. Thomas v. Courtnay, 1 B. & A. 1; Lee v. Lockart, 3 Myl. & Cr. 302; Davidson v. McGregor, 8 M. & W. 755; Smith v. Salzmann, 9 Ex. 535; Squire v. Ford, 9 Hare, 47; Rich v. Lord, 18 Pick. 322. 2 Stock v. Mawson, 1 Bos. & P. 286, 6 Ves. 300; Cullingworth v. Loyd, 2 Beav. 385; Coleman v. Waller, 3 Y. & J. 212; Alsager v. Spalding, 4 Bing. N. C. 407; Cowper v. Green, 7 M. & W. 633. 3 Duffy v. Orr, 1 Cl. & F. 253; 4 McKewan v. Sanderson, L. R. 20 Eq. 65. 5 See Mass. St. 1889, c. 406. |