Pinneo v. Higgins

12 Abb. Pr. 334

Opinion

By the Court.—Daly, F. J.

—After a careful examination of this case, I am confirmed in the view which I took of it at the trial. It is of no consequence whether the name of the plaintiffs was the first that was signed to the composition agreement, or the last. (Knight a. Hunt, 5 Bing., 432.) By signing it they bound them to release Hadden & Stewart upon certain conditions. The obligation was entered into, not only with Hadden & Stewart, but with the creditors who became parties to the composition, and any separate agreement by which the plaintiffs secured to themselves more advantageous terms, whether entered into with the debtors, or with third parties, was a fraud upon the other creditors, and void. (Cullingworth a. Lloyd, 2 Beav., 385; Cockshott a. Bennett, 2 T. R., 763; Smith a. Cuff, 6 M. & Selw., 160; Wilson a. Wray, 2 Per. & D., 253; Howden a. Haigh, 11 Ad. & E., 1033; Faucett a. Gee, 3 Anst., 910; Constantine a. Black, 1 Cow, 287; Cecil a. Plaistow, 1 Anst., 202; Alsager a. Spalding, 4 Bing., N. C., 407.) Such an agreement is equally void, whether made after all the other creditors have signed, or whether before or after the creditor who makes it has signed (Mawson a. Stock, 6 Ves., 300; Jackman a. Mitchell, 13 Ib., 586 ; Ex parte Hall, 1 Deac., 171; Turner a. Hoole, Dow. & Ky., N. P., 27); and though the effect of it was not to secure to the creditors a greater sum than the other creditors were to receive, but only additional security (Leicester a. Rose, 4 East, 372; 1 Smith [Eng.], 41), and though that security be given to the creditor by a third party, even without the knowledge of the debtor. (Knight a. Hunt, 5 Bing., 432.) In this case the plaintiff, by signing the agreement for a composition, agreed to release Madden & Stewart, upon their giving their promissory notes at six, twelve, and eighteen months, for sixty-two and a half cents upon the dollar of the amount due by them, upon paying these notes at maturity, and paying to the plaintiff, upon the residue of their debt, their proportion pro rata of whatever income should accrue to Madden & Stewart from leases held by them of stores upon Broadway. The- plaintiff, when applied to, put off signing the composition agreement until all the other creditors had signed, and then refused to sign unless Madden & Stewart would secure the composition-notes by the indorsement of the defendants, and give their own notes for the remainder of the debt. Madden & Stewart procured Farrell, one of the defendants, to indorse the- composition-notes in the name of his firm, which he did without the knowledge of the other defendant, who was then absent; and the notes thus indorsed were given to the plaintiff, together with Madden & Stewart’s notes for the balance of the debt, upon which the plaintiff signed the composition agreement. The present action was brought against the defendants as indorsers of the composition-notes.

It is settled by the authorities cited, that a security obtained under such circumstances cannot be enforced. “Agreements for composition with creditors,” says Best, C. J., in Knight a. Hunt (supra), “require the strictest good faith.” All who sign the composition agreement bind themselves to the debtor and to each other, to compound with the debtor upon the terms and conditions set forth in the agreement; and no one of them, by a separate agreement with the debtor, or with any other party upon his behalf, can obtain any thing more. If the defendants’ indorsement, therefore, was given as an inducement to the plaintiffs to sign the composition agreement, the plaintiffs can have no benefit from it, for, as parties to that instrument, they must, in good faith to all the other creditors, be held strictly to its terms. The plaintiff, Pinneo, says that he did not intend to accept the compromise, and that it was in consequence of his refusal to accept it that the arrangement referred to was entered into with Madden. If this were so, if he did not intend to release the debtors at all, but merely to extend the time for the payment of the whole debt, upon receiving the defendants’ indorsement as a security for the payment of the principal part of it, then why did he sign the composition agreement? He says that he refused to sign it both before and after he received the new notes with the defendants’ indorsement; that when he received these notes, he gave the old notes to Madden, as a sufficient receipt, and that it was some time after that, that he signed the composition agreement. He testified that he was very sbrongl/y impressed with the belief that Madden came to his store, and asked as a favor that the plaintiffs should sign it; that he urged him to do so, and that he finally consented and did so; that he signed it ultimately, showing that he had accepted the terms upon Madden’s earnest request. He says further, that Madden told him. that he wanted all his creditors to come into the arrangement, but that he declined to sign because he did not intend to accept the terms; that he had no recollection at any time of telling Madden to get other creditors to sign before the plaintiffs would; that he may have said so at the first interview, and thinks it quite likely that he did, and that it was possible that he may have said so at a subsequent interview, although he had no recollection of it, and that Madden may have told him that it was necessary that all his creditors should sign the paper. Here is the important admission that he thought it quite likely that he told Madden at the first interview, to get the other creditors to sign before the plaintiffs would,—equivalent to an agreement that the plaintiffs would sign if the other creditors did. All the other creditors were obtained, and after that Pinneo signed, on behalf of his firm. The testimony of Madden shows very clearly how the plaintiffs’ signature was obtained. He says he applied to Pinneo to sign, and he told him to get the signatures of some of the other creditors before he would sign, in which he is corroborated by the witness Phillips; that he had repeated interviews with him afterwards before he would sign; that he put him off several times, telling him that as soon as he got more of the creditors to sign, to call again; and that after he got all the creditors, he called upon him again, and he refused to sign unless he got some indorsement upon the compositioh-noté, and gave the notes of Madden & Stewart for the residue of the debt. That after he gave him the notes with the defendants’ indorsement, he did not want to sign, but said he would give a guaranty. He then asked him for a receipt for the notes, receipts having been given by the other creditors when they received the composition paper, but Pinneo says he did not want to sign a receipt, as it might compromise him at some future time. Pinneo testified that after he received the new notes, Madden wanted him to sign, and he refused to do so; that he never consented to sign the composition agreement until the moment he signed it; that he was sure of that, and that lie signed it as a personal favor to Madden to relieve the apparent impression on his mind, that after the plaintiff had given up the old notes, they had some claim, and he wanted some written document to show that he had settled. This I did not believe, because it was in conflict with the testimony of Madden, and from its intrinsic improbability. I did not believe that a business man, receiving the notes originally given for the debt, and giving to his creditor new notes in their stead, of the same amount, would be under any apprehension that his creditor would have any claim that would not be embraced in the notes given in renewal; or that he wanted Pinneo, from any such apprehension, to sign the composition agreement to show that he had settled. There was no settlement. It was, according to Pinneo’s account, simply an extension of credit, and the signing of the composition agreement would show nothing, except that the plaintiff had agreed to that compromise. I believed the statement of Madden, as more consistent and probable, supported as it was by the- testimony of Farrell. Madden testified that the new notes were given, and the composition agreement was signed, at the same interview; that when he gave Pinneo the notes, Pinneo did not want to sign the paper, but that he refused to give them unless the plaintiff signed it, as Farrell and others had, refused to let him have goods unless they saw the paper signed; that Pinneo then signed the composition agreement,—whereupon Madden gave the notes, and took the agreement signed by the plaintiffs back to Farrell and showed it to him. And Farrell testified that Mad den exhibited the agreement to him, signed by the plaintiffs, upon the same day that he, Farrell, indorsed the notes. Had-den also testified that Pinneo did not at any time tell him that he would not under any circumstances sign the composition agreement; upon which point, as well as in respect to the statement of Pinneo that he signed it some time after he received the notes, he contradicted Pinneo. Hy conclusion upon the evidence was, that Pinneo held out to Hadden that he would unite in the composition if the other creditors did. That when the other creditors had signed, he sought to obtain better terms: that he then agreed to sign if these terms were complied with, and finally did sign because they were complied with. That he tried to avoid signing, proposing to give a guaranty, and finally put his name to the paper when he. found that he could get the notes in no other way. This was a fraud upon the other creditors, and the plaintiffs should not be allowed to have the advantage of it. To my mind, upon the trial, it was a very plain case, and after deliberately reviewing it upon this appeal, my conviction remains unaltered.

Hilton, J.

—I think that the evidence given at the trial fully sustained the finding of the judge; that the consideration for the note in suit, was the signing by the plaintiffs of the composition-deed of Hadden & Stewart. Pinneo and Hadden were in direct conflict respecting the time when, and the object for which, the note was given; but the testimony of Farrell, that on the same day he indorsed the notes Hadden showed him the deeds signed by the plaintiffs, being corroborative of Hadden on this point, and in direct opposition to the statements of Pinneo, that he did not sign the deed until some time after receiving the note, left, it seems to me, no reason for hesitating in determining as to whose testimony, respecting the transaction, was the most to be relied on.

Assuming, then, that the statements of Hadden respecting the origin of the note are correct, the case presented to us is briefly this: Hadden & Stewart, being insolvent, procured the signatures of all their creditors to a composition-deed, by which it was agreed to accept the notes of Hadden & Stewart at the rate of sixty-two and one-half cents on the dollar of their indebtedness; and on the payment of these notes, together with what might be derived from certain leases, they were to be discharged from all claims and demands. The plaintiffs became parties to this instrument, but as a condition to their signing, they exacted from Madden & Stewart the indorsement of the defendants upon the notes which they were to, and did, receive for their claim; and thus acquired an advantage over that of any of the other compounding creditors, which they now seek to enforce in this action against the indorsers upon one of the notes so taken.

I think there cannot be a doubt that an indorsement by way of security, obtained under such circumstances, is ineffectual and void, upon the ground that an advantage secured to one of the creditors which is denied to the others, is a fraud upon those from whom it is concealed, although it has not, and cannot have, the effect of depriving them of any part of the sum which they agreed to accept in compromise of their demands. It is a fact concealed from them which they are entitled to know, and, if known, might have deterred them from entering -into the composition. The deed is to be regarded as speaking the language of all the creditors, not only to the debtor, but to each other, and must be considered as a common declaration that the security mentioned in it is intended to be taken in full discharge of their-respective debts. (Sadler a. Jackson, 15 Ves., 52; Leicester a. Rose, 4 East, 372; Cockshott a. Bennett, 2 T. R., 763; Jackson a. Lomos, 4 Ib., 166 ; Breck a. Cole, 4 Sandf., 79.)

So scrupulous are courts in compelling creditors to the observance of good faith towards one another in cases of this kind, that any security taken for an amount beyond the composition agreed upon, or even for that sum, better than that which is common to all, if unknown at the time to the other creditors, is void and inoperative. (Nelson, Ch. J., Russell a. Rogers, 10 Wend., 473.) And in the absence of any proof of such knowledge on the part of the other creditors, it must, upon the instrument, be presumed that they did not know it. (Sadler a. Jackson, supra.)

Judgment affirmed.