Newell v. Higgins

One Peterson was indebted to the plaintiff’s Arm, Geo. R Newell & Co., and also to various other persons, and Peterson and various of his creditors, including plaintiff’s firm, executed a composition agreement by which that firm agreed to accept a conveyance of certain real estate in full of its claim, another creditor agreed to accept a conveyance of certain other real estate in full of the debt due it, and each of the other creditors agreed to accept 50 per cent, of his or their respective claims in full thereof. This agreement was carried out. Before signing the agreement it was agreed orally between Peterson and said firm that, in consideration of the firm signing the agreement, Peterson should (in addition to the conveyance of real estate as mentioned in the agreement) execute to plaintiff four promissory notes for $500 each, two of them to be indorsed by this defendant, and the notes were so executed and indorsed. Several of the creditors signed the composition agreement after it was signed by plaintiff’s firm. The oral agreement was to be kept secret from the other signing creditors, and it was never known to them. This action is to recover upon the two notes so executed and indorsed by defendant.

A composition agreement is an exception to the rule that payment of part of a liquidated and due debt is not satisfaction for the *85whole. It is excepted because there is a consideration to each creditor for his agreement to accept less than his claim in full payment The composition is regarded as an agreement, not merely between the debtor and each creditor, but also between the several creditors. The engagement of each creditor to accept less than his claim is the consideration to each of the others for his like engagement. Each creditor signing has a right to assume that each one is to receive the benefit stipulated in the agreement; that it sets forth truly the terms of composition as to all the parties. Any separate agreement by which one of the creditors secures to himself benefits not conferred on the others, and which agreement is not disclosed to them before they sign the composition, is a fraud upon them. Such separate agreement is void. It is claimed, however, that, in analogy to cases of conveyances and transfers made to defraud creditors, the agreement is valid between the parties to it, and void in favor only of those sought to be defrauded, to wit, the creditors. The decisions are uniform that the agreement is void as to all parties. See 3 Amer. & Eng. Enc. Law, pp. 396, 398, and cases cited in notes 5 and 3, especially Howden v. Haigh, 11 Adol. & E. 1033; Atkinson v. Denby, 7 Hurl. & N. 933; Case v. Gerrish, 15 Pick. 49; Ramsdell v. Edgarton, 8 Metc. (Mass.) 227; Harvey v. Hunt, 119 Mass. 279; Fay v. Fay, 121 Mass. 561; Wiggin v. Bush, 12 Johns. 305; Lawrence v. Clark, 36 N. Y. 128; Patterson v. Boehm, 4 Pa. St. 507; Lee v. Sellers, *81 Pa. St. 473. We have not found any case in which such secret agreement was sustained.

There is a class of eases, of which Atkinson v. Denby, supra, is one, which go so far as to hold that even where the secret agreement is fully performed by payment of the money, or transfer of the property, stipulated, the debtor may, upon the theory of coercion exercised over him by the creditor, recover it back from the creditor. It is not necessary for us to express an opinion on those cases. It is certain that, where the agreement has not been fully performed, a court will not assist the fraudulent party by compelling performance.

Order affirmed.