Sec 380

The essence of insolvent releases being equality, the law avoids a secret agreement with any particular creditor by which, in consideration of a release by him, he is to obtain peculiar advantages.1 Hence, securities given without the assent of the other creditors to induce a creditor to assent to a release, are void.2 When such a fraudulent preference is obtained, the creditor cannot recover even the amount of his composition, the whole transaction being vitiated by the fraud.3 The debtor, also, is precluded from maintaining any claim against the creditor on the composition thus fraudulently concocted.4 Any reservation of indebtedness, by a creditor, on executing a composition deed, will be fraudulent, as to other creditors, so far as concerns any claim by the creditor to recover on ground of the indebtedness reserved;5 though one creditor may, with consent of the other creditors, exclude a portion of his claim from the composition.6 Other creditors are not bound by releases they are thus induced to execute;7

Agreements in insolvency for preferences to particluar creditors void.

1 Cockshott v. Bennett, 2 T. R. 763; Britton v. Hughes, 5 Bing. 466; Malla-lieu v. Hodgson, 16 Q. B. 711; Clark v. White, 12 Pet. 178; Huntington v. Clark, 39 Conn. 540; Bliss v. Matteson, 45 N. Y. 22; Bixby v. Carskaddon, 55 Iowa, 533.

2 Leake, 2d ed. 767; Jackman v. Mitchell, 13 Ves. 581; Leicester v. Rose, 4 East, 372; Wells v. Girling, 1 B. &B. 447; Wood v. Barker, L. R. 1.

Eq. 139; McKewan v. Sanderson, L. R. 20 Eq. 65; Bissell v. Jones, L. R. 4 Q. B. 49; Crossley v. Moore, 40 N. J. L. 27; Baker v. Matlack, 1 Ashm. 68; Way v. Langley, 15 Oh. St. 392.

3 Howden v. Haigh, 11 A. & E. 1033; see Sternburg v. Bowman, 103 Mass. 325.

4 Higgins v. Pitt, 4 Ex. 317; Wald's Pollock, 248; citing Bell v. Leggett, 7 N. Y. 176.

5 Harrhy v. Wall, 1 B. & Ald. 103; see Britton v. Hughes, 5 Bing. 460; Harvey v. Hunt, 119 Mass. 279.

6 Woods v. De Mattos, L. R. 1 Ex. 91.

7 Danglish v. Tennent, L. R. 2 Q. B. 49; Pulsford v. Richards, 22 L. J. Ch. 559; Partridge v. Messer, 14 Gray, 180.

"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 principles of equity and the mutual confidence as between creditors upon and an assignment fraudulently obtained does not preclude creditors releasing on accepting it from attacking it or proceeding otherwise against the debtor.1 Any stipulation by an assignor by which the trustee or insolvent assignee is to secretly reserve a benefit to the assignor in fraud of the creditors, is void;2 nor is it any reply that the promise of preference was made by an attorney outside of the range of his duties, or that it was kept secret from the debtor until after final settlement.3 - But unless in contemplation of bankruptcy, or of statutory insolvency, or unless as part of a system of fraudulent composition, a debtor may lawfully prefer one creditor to another.4