
    Kahn v. Gumberts.
    In transactions between a debtor and his creditors which result in a deed oí composition, the utmost good faith is required.
    The debtor, in such case, professes to deal with all the creditors upon equal terms: hence, if he induces one of them to assent to the arrangement by giving him a secret preference over the others, he is guíby of fraud in obtaining the composition deed.
    It is a general rule, that an agreement cannot be made the subject of an action, or set up as a defense, if it can be impeached on the ground of dishonesty, or as being against public policy.
    Hence, a creditor thus deceived would have a right to consider the contract rescinded, and to sue on his original demand.
    
      Tuesday, November 24.
    APPEAL from the Vanderburgh Court of Common Pleas.
    
      
       Counsel for the appellant cited 1 Smith’s Lead. Cas. p. 252, note; Clarke v. White, 12 Pet. 178; Leicester v. Rose, 4 East, 372, 380; Faucett v. Gee, Cullingworth v. Loyd, 2 Har. Dig. 2313; Cecil v. Plaistow, 1 Anst. 202; Ex parte Hall, 2 Har. Dig 2313; Cockshott v. Bennett, Constantine v. Blache, and Howden v. Haigh, Id. 2314; Horton v. Riley, 5 id. 524; Bradshaw v. Bradshaw, Turner v. Hoole, Smith v. Cuff, 2 id. 2313, 2314; Bruh v. Cole, 4 Sand. (N. Y.) 80; Feise v. Randall, 1 Esp. 224; Jackson v. Lomas, 4 T. R. 166;
    
    
      
       Mr. Baker cited Broom’s Leg. Max. 572 to 583, especially 578; Id. 209 to 221; Higgins v. Pitt, 4 Excheq. 312; U. S. Dig. (Ann. for 1847), 123, tit. Composition with Creditors, s. 2.
    
   Davison, J. —

The appellee, who was the plaintiff, brought an action against Kahn, upon a promissory note for the payment of 478 dollars. The note was payable to Kahn^ Reindskopf, ¿f Co., and by them assigned to the plaintiff, j

The answer to the complaint is substantially as follows Kahn, being indebted and unable to pay, proposed to his< creditors at Cincinnati, including the payees of the note in' suit, a compromise. Thereupon, the creditors appointed hi committee to visit Evansville, where Kahn resided, to ex-f amine into his business. Having made such examination]! the committee entered into a written agreement with] Kahn, whereby he agreed to pay 50 per cent.'on the de-j mands against him, part in cash, and the residue at four and eight months, with security. This agreement was to] be submitted to the creditors for approval or rejection. And being reported to them, they gave their assent to it inj waiting, and transmitted such written assent to one Jaques. their agent at Evansville, with instructions to settle with Kahn according to the terms of the agreement. Kahn. pursuant to the settlement, paid Jaques, the agent, 12 and one half per cent, upon 50 per cent/ of the note sued on, and for the residue, gave his notes, with security, at four and eight months. After this, Gumberts, the assignee and plaintiff, was notified that the money and notes so paid and given, were in the hands of Jaques, subject to his, plaintiff’s order, and, for himself, he then agreed to the settlement, and promised to take said money and notes.

The plaintiff replied, admitting the facts stated in the answer, and setting up new matter in avoidance. The reply avers that the assent of Kahn, Reindskopf Sf Co., to the arrangement to take 50 per cent, on their claim, was given upon the condition that all the other creditors of Kahn should come into the same arrangement, and take the same per centum. That when they assented to the agreement, the firm of R. W. Boothe Sf Co., of Cincinnati, was a creditor of Kahn, and that he, Kahn, procured them, Boothe Sf Co., to sign the aforesaid written assent, by fraud, by paying them more than 50 per cent, on their claim, in fraud of the rights of the other creditors, and without their consent or knowledge.

The defendant demurred to the reply; but his demurrer was overruled. Proper issues being made, the case was submitted to a jury, who found specially as follows:

1. That the firm of R. W. Boothe Sf Co. was a creditor of the defendant when Kahn, Reindskopf 8f Co. assented to the agreement of compromise.
2. That the defendant did pay R. W. Boothe Sf Co. 100 dollars in money, and a gold watch worth 100 dollars, in consideration of their assent to the agreement.
3. That the money and watch so paid, exceeded in value 50 per cent, on the claim of Boothe Sf Co. against the defendant; and that the same was paid without the consent or knowledge of the other creditors.

The jury also found a general verdict in favor of the plaintiff for the amount of the note and interest. Motion for a new trial denied, and judgment on the verdict.

It has been repeatedly decided that, if a creditor who signs a composition deed, and thereby induces other creditors to sign it, makes a private bargain with the debtor, the effect of which is to place himself in a better situation than the other creditors, he thereby commits a fraud upon them, and the bargain is void. Lewis v. Jones, 4 B. and C. 511.—Burrill on Assignments, 136. Mr. Story says that, “ such, secret bargains are not only deemed incapable of being enforced or confirmed, but money paid under them is recoverable back, having been obtained against the clear principles of public policy.” 1 Story’s Eq. Jurisp. p. 372, s. 379. But the question to settle in this case is, does such bargain render the composition itself void, so as to enable a creditor who signed it in,good faith to recover on his original demand?

In transactions between a debtor and his creditors which result in a deed of composition, the utmost good faith is required. The debtor professes to deal upon equal terms with all the creditors who enter into the settlement, and they are supposed to stand in the same situation. This, then, being the principle upon which the compromise rests, it would seem to follow that the debtor, when he induces one creditor to assent to the arrangement by giving him a secret preference over other creditors, is guilty of a fraud in obtaining the composition deed; because it must be presumed that such other creditors, had they known of such secret preference, would not have assented to the composition. And it may be stated as a general rule, that an agreement cannot be made the subject of an action, or set up as a defense, if it can be impeached on the ground of dishonesty, or as being against public policy. How stands the case at bar? Here, the debtor, in effect, proposed to deal with all Ms creditors on equal terms. They assented to the proposition. But in the meantime, he had a private agreement with one of them, whereby he placed that one in a better situation, in respect to his claim, than the other creditors; and by that means obtained the deed set up in the answer. There is, it seems to us, no reason why any creditor thus deceived should not have the right to consider the contract as rescinded, and sue on his original demand. Under the facts of this case, no other conclusion can be indulged, unless we assume the untenable position, that a party who obtains a deed by fraud, may rely on such deed in defense of an action. We are, therefore, of opinion that the demurrer was correctly overruled, and that the judgment is fully sustained by the special finding of the jury.

J. G. Pones, and J. Blythe, for the appellant .

C. Baker, for the appellee .

Per Curiam.

The judgment is affirmed, with 5 per cent, damages and costs.  