Almon v. . Hamilton , 100 N.Y. 527 ( 1885 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The plaintiffs did not sign the release of January 30, 1879, nor did they enter into any agreement with Black, or his other creditors, to accept a composition upon their demand against Hamilton, Nephew Co. When Black applied to them to assent to the compromise and sign the composition deed, they refused on the ground that they would thereby release Hamilton, Nephew Co., on the acceptances. It was not until they were assured by Black that he was a special partner only in the firm of Hamilton, Nephew Co., and therefore not personally liable on the acceptances, that they consented to transfer to Ritchie the individual note of Black, with the understanding that he should sign the deed and execute the release as creditor, by virtue of such transfer, but under an agreement with the plaintiffs to hold any dividends, received on account of the note, iu trust for them. The plaintiffs acted with extreme caution. The suit on the acceptances was then pending. There is not the slightest ground for questioning their good faith, nor is there any reasonable doubt that they relied upon the representation of Black that he was a special partner only in the firm of Hamilton, Nephew Co. In fact Black by the partnership arrangement was a special partner, but by reason of some irregularity in the proceedings he had incurred the liability of general partner, which fact it is found he knew, but did not disclose to the plaintiffs.

The defendants, for defense to this action, invoked the well-established principle that a creditor who is a party to a composition between a debtor and his creditors, or who assents thereto, is not permitted to make a secret reservation of a part of his claim, from the operation of the compromise, or stipulate for a secret advantage over the other creditors. The law exacts of all the parties to a composition the most scrupulous good faith. It enforces a wholesome morality and inculcates the principles of honest and fair dealing, by defeating any advantage attempted to be gained, either by working upon the necessities of the debtor, or by colluding with him. It will not permit a part of debt withheld from the arrangement, to be enforced, and it will compel the cancellation of securities, received in violation of the principle of equality. (Russell v. Rogers, 15 Wend. 351; Leicester v. Rose, 4 East, 372; Alsager v. Spalding, 4 Bing. N.C. 407; Horton v. Riley, 11 M. W. 492.) The doctrine is based upon public policy, and the principles of commercial honor, and we should be very unwilling to weaken it by nice distinctions. But to apply it in this case would make it a cover for fraud. The plaintiffs did not intend to reserve any claim against Black, nor did they stipulate for any secret advantage. They were by his fraud induced to believe that he was not personally liable on the acceptances. This is not found in express terms, but is clearly inferable from the findings made, and will be assumed in support of the judgment. They made no representations to the other creditors. They did not sign the deed, and no oral representations are pretended. The signature of Ritchie was at most a representation that his claim, whatever it was, was released, and the only claim he had was upon the individual note of Black. The other creditors are not here complaining. The defense is made in behalf of Black who is seeking to take advantage of his own fraud, and of his copartners, who were in no way connected with the compromise.

We think the judgment should be affirmed.

All concur.

Judgment affirmed.