Where an arrangement is come to between an insolvent debtor and his creditors to accept a composition for their debts and release the debtor, if any one of the creditors stipulates with the debtor for a greater share of his debt, or for further security, than the other creditors receive, so that the debtor is not discharged by him upon the same terms as by the other creditors, such stipulation is illegal and void, as being a fraud upon the other creditors (a). Arrangements between creditors and an insolvent debtor have been thus described:" Each creditor consents to lose part of his debt in consideration that the others do the same, and each creditor may be considered to stipulate with the others for a release from them to the insolvent in consideration of the release by him. Where any creditor, in fraud of the agreement to accept the composition, stipulates for a preference to himself, his stipulation is altogether void" (b). Accordingly, a note obtained by one of the creditors from the debtor for the balance of his debt beyond the amount of the composition, in consideration of his executing the deed of composition, was held void, as a fraud upon the rest of the creditors (c); so, a note given under similar circumstances by the debtor and by a third party as surety, was held void against the surety (d); and a guarantee by a third party to the creditor for the full amount of his debt, in consideration of his executing the composition deed, was held void (e). In order to induce the creditor to agree to the composition a third party gave him a bill for an additional amount, and afterwards, in order to secure the payment of that bill, the debtor by a separate deed assigned to the creditor a policy of insurance and covenanted to keep up the assurance; it was held that the deed was void by reason of the original illegal purpose which it was intended to carry (a) Cockshott v. Bennett, 2 T. R. 763; Jackson v. Lomas, 4 T. R. 166; per Bayley, J., Lewis v. Jones, 4 B. & C. 506, 511; Coleman v. Waller, 3 Y. & J. 212. (b) Per Erle, J., Mallalieu v. Hodgson, 16 Q. B. 689, 711; 20 L. J. Q. B. 339, 347. (c) Cockshott v. Bennett, 2 T. R. 763; Mallalieu v. Hodgson, 16 Q. B. 689. (d) Wells v. Girling, 1 B. & B. 447; and see Bradshaw v. Bradshaw, 9 M. & W. 29. (e) Coleman v. Waller, 3 Y. & J. 212. in fraud of third party. out (a). A secret bargain whereby a bankrupt who had compounded with his creditors agreed to pay one creditor in full, in consideration of his becoming surety for payment of the composition, was set aside in equity as a fraud upon the other creditors (b). The same consequence follows where, upon the making of a composition deed, a creditor stipulates privately for a collateral security either from the debtor or a third party, beyond what is agreed for by the other creditors by the terms of the composition, although the security be not for a greater amount than the composition (c). In such cases the whole transaction is illegal and void, and the creditor who stipulates, as part of his agreement in executing the composition, to have a greater amount, or greater security, than the other creditors, cannot recover even the amount of the composition (d). So, where a composition deed is executed by creditors on the understanding that the debtor is released from all his debts, and a creditor signs for certain debts only reserving others, he cannot afterwards recover the latter, because such reservation is in fraud of the other creditors (e). The transaction is also void as against the debtor, who has given any such fraudulent preference to a creditor to induce him to execute a composition deed; so that where the debtor sued the creditor upon a covenant contained in the deed to indemnify him against outstanding bills, it was held that the creditor might plead the fraud in answer to the action (f). But the debtor being under compulsion and so not in pari delicto with the creditor, may reclaim money paid to the creditor to induce him to execute the deed (g); and if he has been compelled to pay bills or notes given by him to the creditor for the same illegal purpose, and negotiated (a) Geere v. Mare, 2 H. & C. 339; 33 L. J. Ex. 50. (b) Wood v. Barker, L. R. 1 Eq. 139; 35 L. J. C. 276. (c) Leicester v. Rose, 4 East, 372. (d) Howden v. Haigh, 11 A. & E. 1033. (e) Britten v. Hughes, 5 Bing. 460; and see Payler v. Homersham, 4 M. & S. 423; Harrhy v. Wall, 1 B. & Ald. 103; Blackstone v. Wilson, 26 L. J. Ex. 229. (f) Higgins v. Pitt, 4 Ex. 312. (g) Atkinson v. Denby, 6 H. & N. 778; 7 ib. 934; 30 L. J. Ex. 361; 31 ib. 362; ante, p. 67; post, p. 407. by the creditor, he may recover the amount from the creditor (a). tract. The effect of illegality in the matter or purpose of an agree- Effect of ment, of the kinds described above, is to render the agree- avoiding illegality in ment wholly void of legal effect; and no right or action can the conbe founded upon it (b). The effect of the illegality is the same, in whatever form the proposed contract is framed, whether it is in the form of a simple contract, or of a contract under seal; if the contract is made in the form of a bond and the condition is illegal, the bond is void (c). With respect to the consideration of a contract, it is equally required to be legal, whether it is executory, i.e. a matter promised, or whether it is executed, i.e. a matter performed; if the matter, promised or performed, is illegal, it will not support a binding promise. Though a contract under seal does not require a consideration to support it, and it is not necessary that one should appear in the written terms of the contract, yet, if in fact there was a consideration for the contract, it must be a lawful one, otherwise the contract is void (d). evidence All the circumstances connected with a contract may be Extrinsic examined in order to show its illegality, though the contract admissible in its terms is apparently unimpeachable. Where a contract to show illegality. is made in writing, and even where it is made by deed under seal, and contains no apparent illegality in its terms, extrinsic evidence is admissible in variance of its terms to show that the transaction was illegal and void (e). If a party voluntarily performs an illegal contract which Effect of he might have successfully resisted on the ground of the after execu (a) Smith v. Cuff, 6 M. & S. 160; and see Wilson v. Ray, 10 A. & E. 82; Bradshaw v. Bradshaw, 9 M. & W. 29; Horton v. Riley, 11 M. & W. 492; ante, p. 45. (b) Holman v. Johnson, 1 Cowp. 341, 343; Wetherell v. Jones, 3 B. & Ad. 221, 226. (c) Co. Lit. 206 b. (d) Ante, p. 85. (e) Collins v. Blantern, 1 Smith, L. C. 5th ed. 310; Paxton v. Popham, 9 East, 408; Williams v. Jones, 5 B. & C. 108; R. v. Northwingfield, 1 B. & Ad. 912; Bridges v. Fisher, 3 E. & B. 642; 23 L. J. Q. B. 276; Geere v. Mare, 2 H. & C. 339; 33 L. J. Ex. 50. illegality tion of the contract. cution of contract. Effect of illegality, he cannot afterwards rely on the illegality for the illegality after exe- purpose of avoiding his performance of the contract. Thus, money fairly lost at illegal gaming, and paid, cannot be recovered back (a). The plaintiff being about to make a composition with his creditors, in order to induce the defendant to subscribe the deed, gave him a bill for the balance of his debt, (which was illegal as being in fraud of the other creditors,) and paid it voluntarily to the defendant; it was held that he could not recover back the amount (b). If a debtor owes the same creditor two debts, one arising out of a legal contract, and the other out of a contract void for illegality, and makes a payment without specifically appropriating it to either debt, the creditor may exercise his right of appropriation by applying it to the debt arising out of the illegal contract (c); but if neither creditor nor debtor appropriates the payment, the law appropriates it to the debt recognized by law (d). So, if in execution of an illegal agreement money is paid to an agent for one of the parties and is received by the agent for his use, that party may recover it from the agent, who cannot set up the illegality in the original contract in answer to the claim (e). Thus, a broker, having effected a policy of insurance on a ship for an illegal voyage, and having received the amount from the underwriters upon the loss of the ship, was held bound to pay over the amount to the shipowner notwithstanding the illegality of the policy (ƒ). So, an agent who has sold goods for his principal, and received the price, is bound to pay it over to his principal, although the contract of sale was illegal and void (g). So, where two persons joined in an illegal wager which they won, and the whole amount was paid to one of them, the other was held entitled to recover his share from the one who had received the whole (h). (a) Thistlewood v. Cracroft, 1 M. & S. 500. (b) Wilson v. Ray, 10 A. & E. 82; (c) Philpott v. Jones, 2 A. & E. 41; (e) See ante, p. 66. (f) Tenant v. Elliott, 1 B. & P. 3. (g) Farmer v. Russell, 1 B. & P. 296; Bousfield v. Wilson, 16 M. & W. 185; and see Nicholson v. Gooch, 5 E. & B. 999; 25 L. J. Q. B. 137, 147. (h) Johnson v. Lansley, 12 C. B. 468. as the con contract. Whilst an illegal agreement remains executory, the party Money paid who has paid money as the consideration of it may repudiate sideration of the agreement and reclaim the money. A wagering contract an illegal was made by the plaintiff paying the defendant a sum of money in consideration of the defendant binding himself to pay the plaintiff an annuity of a certain sum until the duties on hops reached a certain amount; it was held that, the contract being illegal, the plaintiff might demand and recover back the sum paid by him (a). So, money deposited with a stake-holder upon an illegal wager may be reclaimed at any time before it is paid over according to the event (b). The plaintiff, having paid money as the consideration of a contract which he is entitled to rescind on the ground of illegality, must give notice to the other party that he rescinds the contract and reclaims his money, before he can maintain an action to recover it (c). tion of the contract. But after the contract has been executed, the money paid Afterexecu as the consideration of it can no longer be recovered. Where the plaintiff paid a premium for a wagering insurance upon a ship in which he had no interest, it was held that, after the ship had safely completed the voyage insured, he could not recover back the premium (d). So, it was held that the premium for the re-assurance of a ship, which is unlawful by 19 Geo. II. c. 37, after the loss of the ship, could not be recovered back (e). There are some cases where a person having paid money Where the as the consideration for an illegal contract, which has been parties are not in pari executed, is nevertheless entitled to reclaim the money on delicto. the ground that he is not equally guilty (in pari delicto) with the other party to the illegal agreement who has received the money, and therefore may repudiate the contract as against that party. "The rule is, in pari delicto potior est conditio defendentis; where the contract is executed, and the money paid in pari delicto, this rule certainly holds; and the party who has paid it cannot recover it back. For (a) Tappenden v. Randall, 2 B. & P. 467; and see the cases cited ante, p. 64. (b) See ante, p. 65. (c) Palyart v. Leckie, 6 M. & S. 290; Gatty v. Field, 9 Q. B. 431; |