1839-Cullingworth v. Loyd.

held, in addition to the amount of composition He accepted the composition, but did not then execute the composition deed; he afterwards realized his mortgage security, and then executed the composition deed, by which he purported to release his debtor altogether, without any reservation of the mortgage security; another creditor subsequently executed the composition deed. The agreement was not communicated to the other creditors, but there was no fraudulent concealment: Held, on grounds of public policy, that the creditor was not entitled to retain his mortgage security in addition to the amount of the composition.

A plaintiff partially succeeded, so as to be entitled to costs; but he failed in establishing unfounded charges of fraud, for the costs of which the court considered him liable. The court made a decree, without costs on either side.

In the year 1830 the plaintiff and Charles Addy were partners in the business of calico-printers at Manchester, and they had an account with Messrs. Loyd as their bankers. The plaintiff was separately entitled to a certain real estate, called the West Moor estate, which was situate in the county of Durham, and in June, 1830, the plaintiff deposited with Messrs. Loyd the title deeds of this estate, as a security for the balance which might be due to them from the firm of Addy & Cullingworth.

Towards the end of the year 1830, the plaintiff and Addy, being considerably indebted and embarrassed, determined to wind up their affairs, and on the 31st of December, 1830, they executed a power of attorney, whereby they empowered Edmund Grundy to act for them in that respect, and enabled him to pay the debts of the concern by an equal pound rate, without *preference or priority. The day previous to the execution of this [*386] power of attorney, Edmund Grundy called on Messrs. Loyd, who were the principal creditors, and asked the advice of Mr. Edward Loyd as to an intended composition, and the defendant Mr. Edward Loyd thereupon stated that his house would accept a dividend equal with the other creditors, retaining, however, at the same time, the West Moor estate as a security for the balance which would be owing after the dividend had been received. To this Edmund Grundy, acting for the plaintiff, agreed; and he further suggested, that for the purpose of making the security more effectually available, it would be better to convert the equitable into a legal mortgage with a power of sale; and accordingly, by indentures of lease and release, dated the 10th and 11th of March, 1831, the plaintiff mortgaged the West Moor estate to Messrs. Loyd & Co. for 20241. 15s. 2d., and thereby gave them a power of selling the mortgaged property in case of default being made in payment of principal and interest on the 10th of September, 1831.

What was done by Grundy in the mean time for winding up the partnership business or promoting the composition, no further appeared in the cause than this, that he caused a deed of release to be prepared for execution by the creditors.

This deed, which was dated the 21st of October, 1831, recited that Addy & Cullingworth, being unable wholly to discharge their debts, had proposed to pay their creditors a composition of 10s. in the pound, which the creditors had agreed to accept in full satisfaction of their several debts. And it purported to witness, that each creditor executing the deed released Addy &

1839.-Cullingworth v. Loyd.

Cullingworth from the debt owing by them to him, and all interest [*387] due thereon, and also from all securities given by Addy & Cullingworth or either of them, for securing payment of such debt; provided that any creditor might be at liberty to execute the deed without prejudice to any other lien or security which he might have for the debt against any other person.

In the months of September and October, 1831, advertisements were published, giving notice to the creditors that they might receive a dividend of 10s. in the pound on their debts on executing the release, and several creditors executed the deed; but it did not appear that there was any general meeting of the creditors, or any agreement entered into by the creditors genally.

Sometime after the publication of the advertisments, and on the 13th December, 1831, Mr. Edward Loyd received from Edmund Grundy the sum of 10121. 7s. 7d., being the amount of the composition of 10s. in the pound on the whole debt due to the defendants. At the time when the payment was made the deed was not executed, and it was agreed between Edward Loyd and Grundy who represented the plaintiff, that the defendants should have the benefit of the security for the recovery of so much as they could of the remaining moiety of the debt.

The dividend was received in December, 1831, and soon afterwards Mr. Edward Loyd proceeded under the power to sell the estate. An agrement to sell for 8001. was entered into with Lord Howden on the 1st of February, 1832, and was made under circumstances which gave rise to another question in this case. The purchase, however, was completed, and the purchase [*388] money received by the defendants on the 1st of May, *1832, and it was applied in reduction of the debt which remained due to the defendants after they had received the composition; and on the 29th of June following, Mr. Loyd executed the deed. All the other creditors, with the exception of one who executed afterwards, had previously executed the composition deed.

It did not appear that the arrangement entered into between the plaintiff, by Mr. Grundy, and Messrs. Loyd was communicated to the other creditors. Thi bil was filed in June, 1832, to set aside the mortgage of 1831, and insisted that by the execution of the composition deed the defendants, Messrs. Loyd, had given up their security upon the West Moor estate; and by amendnients made in 1836 and 1837, personal fraud was charged against the defendants, and the sale to Lord Howden was sought to be set aside. All relief against hi Lordship was however abandoned at the hearing.

Several creditors were examined, who proved, that they believed when they executed that all the creditors had agreed to accept the composition; and some stated that they would not have accepted the composition if they had known that Messrs. Loyd were to retain their securities in addition.

Mr. Pemberton, Mr. Kindersley and Mr. K. Parker, for the plaintiff, con

1839. Cullingworth v. Loyd.

tended, that the legal mortgage of March, 1831, had been improperly obtained.. That by the established rule of law, the defendants, Messrs. Loyd, being parties to the composition deed, could not retain any advantage over the other creditors not expressed in the deed, or distinctly and clearly communicated to the body of creditors; and that by the *course of dealing [*389] in this case they had given up their claim upon the mortgaged estate; that the sale to Lord Howden was improvident and at an under value, and was made under such circumstances as to render the defendants liable for the whole value.

Mr. G. Richards, Mr. S. Sharpe and Mr. Mylne, for Messrs. Loyd, contended that there was no general agreement between the debtors and the creditors in this case, but a separate arrangement with each; that the defendants had always expressly and openly reserved their rights in respect of the mortgage, and that there had been no fraud or intention to conceal the terms of the arrangement. That the deed had not been executed until the security had been realized; and that the other creditors, except one, having executed the deed previously to Mr. Loyd, could not have been misled by it.

They argued also, that the sale had been proper, and for the full value at the time.

The cases cited in the argument will be found amongst those in note, page 395.

1840: March 21.-THE MASTER OF THE ROLLS:-The object of this bill is to have it declared, that a mortgage executed by the plaintiff to the defendants, Messrs. Loyd & Co, was not properly obtained, and to have the mortgaged estate re conveyed, or the value thereof paid by the defendants to the plaintiff.

On the 30th of December, 1830, when the first transaction between Grundy and Mr. E. Loyd took place, Mr. Loyd was entitled to insist on the benefit of his security, and of all the other means which the law al- [*390] lowed him for recovering his debt; and with reference to the contemplated composition with all the creditors, he had a right to say as he did,that he would not come into the agreement or arrangement for the composition unless he were allowed to make his security available for the residue of his debt; but this was a right which, considering the way in which the interests or the intention of other creditors might be affected by it, Mr. Lloyd could not act upon without either holding himself entirely aloof from the other creditors, or distinctly communicating with them on the subject if he acted in common with them at all. I think also that at the time to which I am referring, Mr. Lloyd had a right to say that he would not accept the dividend unless upon the terms of having his security converted into a legal mortgage, with a power of sale: and upon a consideration of the evidence, I am of opinion that the legal mortgage, which was not executed till after the lapse of more than two months from the suggestion of Edmund Grundy, was not improperly obtained. Whether the defendants were, under the circumstances

1840. Cullingworth v. Loyd.

which afterwards occurred, entitled to the benefit of the mortgage, is the next question to be considered.

The composition was contemplated and the power of attorney to Grundy was given in December, 1830, the mortgage to the Messrs. Lloyd was executed in March, 1831, and the power of sale attached in the following month of September.

It must be observed that Edmund Grundy was winding up the business under a power of attorney, which enabled him to pay the debts by an equal

pound rate; but it does not appear that there was any general meet[*391] ing of the creditors, or any agreement entered into by *the creditors

generally. The advertisements, however, show a proposition to the creditors at large to pay them all a composition on certain terms; and although every creditor was at liberty to refuse the composition, it is established by a series of decisions, that a creditor cannot ostensibly accept such composition and sign the deed which expresses his acceptance of the terms, and at the same time stipulate for or secure to himself a peculiar and separate advantage which is not expressed upon the deed; and in the case of Leicester v. Rose,(a) it is stated by Mr. Justice Le Blanc, that in the consideration of cases of this nature, it is not material whether the agreement be entered into at a meeting of all the creditors assembled for the purpose, or impliedly by their affixing their signatures to the same deed carried round or produced to each separately, and signed by them: those who, by executing the deed, hold out that they come in under the general agreement, are not permitted to stipulate for a further partial benefit to themselves.

The deed not being executed by Edward Loyd, there was up to this time nothing in common between him and the other creditors: so far from agreeing to the terms expressed in the deed, one of which was, that securities giving by Addy & Cullingworth, or either of them, should be given up, he had expressly refused to do so, and that for the expressed and avowed purpose of retaining his right to make the security available for so much of the debt as was not discharged by the composition. He appears to have understood that the stipulation which he made for himself and his partners was to be made known to all the creditors, but he did not himself take any means to make it known.

[*392]

*On the 29th of June, 1832, Mr. E. Loyd executed the deed, and thereby, for the first time, brought himself into community with the other creditors who had executed or might afterwards execute it. He had, in fact, received the same dividend as the other creditors, and had besides availed himself of the security given to him by the plaintiff; and although he seems to have considered, that as he had realized the security he might safely release the plaintiff and retain his advantage (as indeed I conceive he might have done by a proper method of proceeding,)[1] yet the question re(a) 4 East, 372.

[1] "The rule cutting off underhand agreements in cases of joint and general compositions, as

1840. Cullingworth v. Loyd.

mains, whether after execution of the deed any other creditor could have understood, that between the time when he received the dividend and the time. when he executed the deed he had realized the securities which the deed purported to release. It was, indeed, argued, that the securities mentioned in the deed were only mercantile securities, but it is evident that Mr. E. Loyd himself did not so construe the deed; and considering that no explanation of Mr. E. Loyd's signature was endorsed on the deed,-that no notice was given upon the deed that Mr. Loyd had received both the composition and the produce of the security it appears to me that the same principles of public policy which have governed other cases of this kind will deprive Mr. Loyd of his right to retain the advantage which his execution of the deed purported his intention to release; and in this respect, though not for all purposes, I think that his execution of the deed must, in equity, have the same effect as if he had executed the deed on the same day on which he received the dividend.

There is besides evidence, which though not very distinct, may be relied on, to show that there was at least one creditor who watched the conduct of Messrs. Loyd, the largest creditors, and refused to sign until *the Messrs. Lloyd had done so; and although Mr. E. Loyd ap- [*393] pears to have stated at the time, to the person who asked him to sign, that having realized his securities he would sign (and this shows there could be no intention to mislead,) yet the fact of his intention to avail himself of his securities was not so stated as to guard other creditors from being misled; and under all the circumstances, I am of opinion, that having received the dividend and executed the deed, Messrs. Loyd had no right to retain the benefit of the money which arose from the security.

The next question is, whether Messrs. Loyd ought to be charged with more money, as the value of the estate, than the amount of the purchase money which they received from Lord Howden. The plaintiff has by his bill charged fraud against the defendants Messrs. Loyd, and against Lord Howden, and has prayed for a reconveyance of the estate; but the attempt to recover the estate from those who claim under Lord Howden has been abandoned, and the claim now is, that Messrs. Loyd, having sold the estate improperly, and at a greatly inadequate value, ought to be charged with the real value, to be now ascertained.

[His Lordship having gone minutely into an examination of the evidence on this point came to the following conclusion :-)

Looking at all the circumstances, and even considering Mr. Loyd to be a trustee for the plaintiff, which in one sense he was, I think that there is no

a fraud upon the other compounding creditors, and because such agreements are subversive of sound morals and public policy, has no application to a case like the present, where each creditor acts not only for himself, but in opposition to every other creditor, all equally relying upon their vigilance to gain a priority; which, if obtained, each being entitled to have satisfaction, the payment cannot be questioned." Catron J. Clarke v. White, 12 Peters, 200.