§ 653. But where a debtor, in embarrassed circumstances, enters into an arrangement with all his creditors,.to pay them a legal claim to demand? In Seavingv. Brinkerhoff, 5 Johns. Ch. 329, where there was an assignment of real estate (not purporting to be all the estate of the debtor) for the use of all the creditors, upon the condition of their executing a release, that very learned judge, Mr. Chancellor Kent, held, that the assignment was, on that account, fraudulent and void, and that the condition was oppressive, and without any color of justice, as the assignment was not of all the property of the debtor, but only of a part. The reasoning of the court in Hyslop v. Clarke, 14 Johns. 459, though the case itself was distinguishable from the present, is, as far as it goes, strong against such a stipulation, where the assignment is of all the property. That case and its reasoning met the entire approbation of Chief Justice Spencer, in his able opinion in Austin v. Bell, 20 Johns. 442; and on that occasion the latter, in behalf of the court, declared, 'that a deed, which does not fairly devote the property of a person overwhelmed with debt to the payment of creditors, but reserves a portion to himself, unless the creditor assent to such terms as he shall prescribe, is in law fraudulent and void, as against the statute of frauds, being made with intent to delay, hinder, or defraud creditors of their just and legal actions.' Had the court considered the principle fully adopted and recognized in Seaving v. Brinkerhoff, 5 Johns. Ch. 329, and Burd v. Smith, 4 Dall. 76? Tried by this principle, the stipulation in the present case would make the assignment utterly void, for the surplus, after payment of the assenting creditors, is to go to the debtor. The question is not (I repeat it), and cannot be, whether there may not be some remedy for the creditors to intercept the surplus, but whether the intent, apparent upon the deed itself, be not to coerce them to a settlement by embarrassing or delaying their remedy. Such an intent is of itself illegal. In examining the Massachusetts Reports, the point does not appear to have met with any direct decision. In Widgery v. Haskell, 5 Mass. 144; Ingraham v. Geyer, 13 Mass. 146; and Harris v. Sumner, 2 Pick. 129, there are intimations which might well lead one to doubt if the court were prepared to admit the validity of such a stipulation. On the other hand, in Hatch v. Smith, 5 Mass. 42, there was a stipulation for a release, and no exception was taken to it, though the case was contested by very eminent counsel. The case turned, indeed, in the judgment of the court, upon a point somewhat more close, for the creditors, to an amount beyond the property conveyed, agreed to the deed before it was executed by the debtor, and the assignment was upheld. Then, again, in Hastings v. Baldwin, 17 Mass. 552, where the assignment was held not to be fraudulent, we are now told by the counsel, that there was such a stipulation, although it is omitted in the report, no question having been raised on that point. Yet, doubtless, if the court had thought such a stipulation per se fraudulent, that was as fit a case as could arise for the application of the principle. The decisions in Massachusetts, therefore, leave the question in equilibrio.
But when we take into consideration the great length of time during which stipulations of this nature have prevailed in this State, without objection, there is much reason to believe that the profession have deemed the law settled in favor of the debtor on this point.
"Then, on the other hand, in Lippincott v. Barker, 2 Binn. 174, where the direct point arose, it was settled that a stipulation for a release was not fraudulent. The reasoning of the court is limited, indeed, to the circumstances of that particular case, but it would be difficult not to perceive that it naturally reaches further. I find, also, that my brother, Mr. Justice Washington, in Pierpontw. Lord, in 1820, is reported to have held that an assignment in trust for the benefit of such creditors as should release their debts, is founded upon a sufficient consideration in law. The case is not in point, but it was probably decided on the general principle. There is, however, a case in England directly in point. It is The King in aid of Braddock v. Watson, 3 Price, 6, where the very exception was taken by counsel, and the assignment was held good by the Court of Exchequer against the claim of the crown itself. [See Small v. Marwood, 9 B. & C. 300; Goss v. Neale, 5 Moore, 19.
"The weight of authority is then in favor of the stipulation; for the decisions in New York did not turn upon the naked point of a release, but upon that, as incorporated into a peculiar trust. I am free to say that if the question were entirely new, and many estates had not passed upon the faith of such assignments, the strong inclination of my mind would be against the validity of them. As it is, I yield without reluctance to what seems the tone of authority in favor of them."
1 1 Story, Eq. Jur. § 378, 379; Chesterfield v. Janssen, 1 Atk. 352; Case v. Gerrish, 15 Pick. 50; Clarke v. White, 12 Peters, 178; Wiggin v. Bush, 12 Johns. 306; Cockshott v. Bennett, 2 T. R. 763; Jackson v. Loraas, 4 T. R. 166. And a promise is within this principle which is made by one of several next of kin to another to induce him to acquiesce in the administrator's account, and to refrain from proceedings to compel the promisor to account for other property alleged to have been appropriated by him; unless the promise is made with the assent of the other distributees. Adams v. Outhouse, 45 N. Y. 318 (1871). 2 Dauglish v. Tennent, Law R. 2 Q. B. 49 (1866). Any agreement by a composition deed between the debtor and all his creditors, - such notes are totally void, even between the parties, as being a fraud on other creditors. The consideration was illegal.1 So, where A. was indebted to the plaintiff, and, being embarrassed, made an agreement with him, that if the plaintiff would procure a composition from the creditors, he, A., would give him security for the repayment of his debt; and thereupon the defendant became surety for A., upon a joint promissory note, agreeing that the transaction should be concealed from the creditors, and the plaintiff failed in obtaining a composition; it was held, that he could not recover against the defendant upon the note, because the transaction was fraudulent, and therefore void, in its inception.2 But the preference of a particular debt, with funds remaining after the deed of composition has been discharged, will not be considered as a fraud upon the other creditors, if there were no previous agreement to make such an arrangement, which operated as a consideration for the composition deed.3