E T Fisher and Company Pty Ltd v English Scottish and Australian Bank Limited [1940] HCA 42

1940. valuable consideration after composition - Validity. 'ean In 1934 a company granted a charge over its assets to a trustee for it ie Bon ' creditors and the creditors assented to an arrangement whereby upon p ie lea ment by instalments by the company to the trustee of a sum sufficient to p SYDNEY, a composition of 12s. 6d. in the £1 the creditors would release the comy Dec. 12. from the whole of its indebtedness. The company in 1936 obtained a Rich A.C, advance from its bank, one of its creditors, to enable it to pay the trustee wer TKe,,,, Sum necessary to pay the composition, In consideration of this advance, Williams J company granted the bank a new charge over its assets and agreed to pay

bank the full amount of its indebtedness, including the new advance and balance of its original debt. All creditors, including the bank, received # composition from the trustee, but the other creditors, with one ext were ignorant of the new arrangement with the bank. In an action by bank for the balance due under the arrangement of 1936, the compat tended that this arrangement was a fraud on other creditors who, in

the composition, were ignorant that the bank, another creditor, would 20s. in the £1.

Held that the arrangement of 1936 did not involve a fraud on the creditors, and accordingly the bank was entitled to payment therounde because (by Rich A.C.J., McTiernan and Williams JJ.) the transaction wa

not contemporaneous with the composition and in 1934 there was no misrepre- sentation by the bank of its position to the other creditors when the composi- tion was effected ; (by Starke J.) the transaction was beneficial to the company, the bank and the creditors, as it enabled the company to pay its composition and was not inconsistent with good faith between the bank and the other creditors,

Decision of the Supreme Court of South Australia (Angas Parsons J.) varied.

The main shareholder and director of E. T. Fisher & Co. Pty. 'Litd., which carried on business in South Australia, was John Indwig Koch. The company obtained an overdraft from the English Scottish and Australian Bank Ltd., and, on 17th December 1929, to secure this overdraft Koch granted to the bank a registered mortgage over land owned by him. It was provided in this instrument that Koch would pay on demand the indebtedness from time to time of the company and the acceptance by the bank of any composition from the company would not in anywise discharge Koch from any liability under the instrument, nor otherwise affect or prejudice the security. The instrument was stamped to cover advances up to £6,000, but subsequently, on Ist August 1930, Koch executed a further guarantee of the company's indebtedness, limiting his liability by the latter document to £10,500. The company after 1930 found difficulty in paying its debts, and, at a meeting of 'reditors on 16th December 1931, it was resolved that the business of the company should thereafter be carried on under the supervision of one Ferres. Under the management of Ferres the company was able only to pay off a dividend of one shilling in the pound, and in 1934 it was arranged to place the company again under the direction of the former directors, including Koch. At a meeting of creditors held on 13th July 1934 it was agreed by all creditors, including the bank and the company, that the company was to give to Ferres as trustee for the creditors a charge over all its assets present and future,

to secure the payment in full of all the company's debts, the total of which then was stated to be £11,951 7s. 10d., but with the proviso that, if the company paid £7,500 on or before 18th August 1936 by a deposit of £500 and monthly instalments of not less than £250, that sum was to be accepted in full satisfaction of the indebtedness to all creditors. Pursuant to and in the terms of this arrange- 'ment, on 3rd August 1934 the company executed a charge over all its assets in favour of Ferres. During the course of negotiations for this charge Koch on 11th July 1934 wrote to the bank as follows :

• *The debts due to its creditors by E. T. Fisher & Co. Limited,

E. T. Fisner & Co. Pry. Lap. e ENGuish ScorrisH aND AUSTRALIAN Bank Lrp.

Rees E. T. Fisner & Co. Pry. Lr. v Eyeuisu ScorrisH anp AUSTRALIAN Bank Lrv.

including the E. S. & A. Bank Limited will be secured as you know by a charge to be executed by that company in favour of Mr. L. W Ferres as trustee for the said creditors. I have already guaranteed payment by the company to the E. S. & A. Bank. This letter i

to inform you that the charge about to be given by the company to Mr. Ferres will not prejudice or adversely affect in any way guarantee given by me to the bank as mentioned above,

guarantee will remain in full force and virtue according to tenor thereof notwithstanding the fact that there are fi operations upon the account at the bank by the company and moneys lent and notwithstanding that the bank shares the ben

pro tanto and participate in the funds to accrue under the chi Provided always that discharge in full by payment under th charge shall release me from the guarantee." By April 1936 the company had paid to Ferres for distribution to creditors the sum of £5,667, leaving a balance of £1,833 to be paid before Augus

The company thereupon arranged with the bank that it should

the composition, thereby helping to improve the reputation goodwill of the company amongst its creditors. Accordingly, 27th April 1936, in consideration of the new advance the company

present and future with payment to the bank of all moneys then and thereafter owing by it to the bank. The debenture provided that it should not affect any guarantee held by the bank and tha it should be collateral to the security of the guarantee mortgage granted by Koch. The effect of the covenant for payment was that the bank was to receive payment in full, not only of the advane then being made, but also the balance of its original indeb after payment of the composition, together with compound interes thereon. On 28th April 1936 the company drew a cheque for £1,825 10s. on the bank and paid it to Ferres as the balance of th composition of £7,500. Ferres on 8th May 1936 distributed tl moneys among the creditors, including the bank, which in fa received £1,373 15s. 2d. as its dividend. On 14th May 1936 ro th

executed a full discharge of the debenture charge given by company to him in favour of its creditors. On 11th May 1936 overdraft of the company was £7,691 6s. 10d., including the sum of £1,825 10s., the new advance, and was transferred by the bank a new account known as '' No. 2 account." It was agreed that company should keep down the interest on this account and redl

the principal each year by the sum of £500. The company paid £2,141 10s. pursuant to this arrangement, and Koch as guarantor made payments aggregating £575 in reduction of principal and interest. The arrangement made between the bank and the company in April 1936 was not known to the remainder of the creditors except one, Kemsley & Co. Pty. Ltd., which was the largest creditor after the bank. The company continued to do business with the bank, and on 18th July 1939 the bank made demands on the com- pany and Koch for payment of £7,065 1s, 7d., the company's balance then due to the bank on its two accounts, including the " No. 2 account." The amount was not paid, and the bank instituted proceedings in the Supreme Court of South Australia against the company and Koch to enforce payment. Among the defences taken (and being the only one relevant to this report) was a contention by the company and Koch that the arrangement made between the parties in 1936 was a fraud on the other creditors and therefore void and released them from any liability to the bank for the advances made by it. Koch also instituted proceedings in the Supreme Court against the bank, relying substantially on the contention set out in his defence in the former action and also the last portion of the letter set out above and claiming a declaration that he was under no liability to the bank under the guarantee mortgage and orders that the bank deliver up the instrument and repay the sum of £575 paid by him to the bank after April 1936 on the company's " No. 2 account." 'The company also instituted proceedings against the bank, relying substantially on the same contention and claiming similar relief as Koch against the bank. It was ordered that the three actions should be consolidated and heard together. The actions were heard _ by Angas Parsons J., who gave judgment for the bank against Koch and the company for the sum claimed in the first action, declared that Koch was entitled to a declaration that the guarantee mortgage _ was duly discharged and should be delivered up to him as claimed inthe second action and ordered that the third action by the company against the bank be dismissed. He ordered Koch and the company _ to pay the costs of the bank in the three actions. Koch and the company appealed to the High Court, and the bank

• eross-appealed in respect of the declaration made in favour of Koch. Further facts appear in the judgments hereunder.

Ligertwood K.C, (with him Culshaw), for the appellants. In a mise with creditors any arrangement between a creditor "and debtor whereby the creditor gains or seeks to gain preference

H.C. or A. over other creditors is against public policy and is deemed to h 1940. fraudulent and void. The effect of such an arrangement is to E. 7. Fisunr destroy the debt altogether so that the creditor cannot sue for it, & Co. and, if the debt is guaranteed, then the guarantee is also discharge amy Ir. by the fraudulent act. Another consequence is that, if any moni Exousx are paid under such an arrangement by either the debtor or th peer eeD guarantor, then such moneys can be recovered from the creditor Bank Lrv. and any securities taken in the course of the fraudulent arrangemen must be delivered up and cancelled. The arrangement m between the bank and the company is void on the ground of illegality (Britten v. Hughes (1); Mayhew v. Boyes (2) ) e analysis of the latter case shows that emphasis is placed on the word "'fraudulent."" The law is that, if the creditor makes the arrangement behind the backs of other creditors as the bank did this case, then the transaction is illegal and void (Hx parte Barrow; In re Andrews (3); Ex parte Burrell; In re Robinson (4) ). a follows irrespective of the intentions of debtor or creditor. e must be full disclosure among all the creditors, and, if one seeks to obtain an advantage over the other creditors, then any transaction giving such an advantage is fraudulent and void. The consequen of such a transaction are that the debt is destroyed by illega (Mallaliew v. Hodgson (5); Ex parte Phillips ; In re Harvey (6) ), and the bank must deliver up the debenture to the company (Jackman v. Mitchell (7); Middleton v. Lord Onslow (8); Jackson y. Lomas (9); Fawcett v. Gee (10) ). It would not be a security even for the fresh advance. In American Annotated Cases (1914), p. tl, a résumé of the law on this point is set out. In Zz parte Phillips In re Harvey (6) and Mayhew v. Boyes (11) the creditor does not lose ; only the difference between the debt and composition but loses the composition as well, as the consideration is illegal. The bank cannot get the composition. The next consequence is that the company can recover from the bank all moneys subsequently paid by it to the bank. That is an independent cause of action for money paid pursuant to an illegal arrangement (Smith v. Bromley (12); Smith

v. Cuff (13) ; Horton v. Riley (14) ; Atkinson v. Denby (15); Ine (1) (1829) 5 Bing. 460, at p. 464 [130 (10) (1797) 3 Anst. 910 [145 E.R. 1079].

(2) (1910) 103 L.T. 1, at p. 2. (12) (1760) 2 Doug. 696 (99 E.R. 441). (3) (1881) 18 Ch. D. 464. (13) (817)6.M. &8. 160 [105 E.R. 1208) (4) (1876) 1 Ch. D. 537. (14) (1843) 11 M. & W. 492 [152 EB.

1045 (15) (1861) 6 H. & N. 778, at p. 788 (6) (1888) 36 W.R. 567. [158 E.R. 321, at p. 325] ; (1862) (7) (1807) 13 Ves. 581 [33 E.R. 412). t H. & N. 934, at p. 936 [158 (8) (1721) 1 P.Wms. 768 [24 E.R. 605]. E.R. 749, at p. 750].

Lenaberg's Policy (1) ). The principles are clearly set out in Atkinson 4. ©. or A. vy. Denby (2). In Wilson v. Ray (3) there was no pressure of the "isa debenture over the debtor's assets, but here there was a threat by » 7. Fisuen 'the debenture holder to appoint a receiver. In that case the - & Co. sure had ceased ; here it had not. In Spencer Bower on Action- aad

able Non-disclosure (1915), p. 528, Wilson v. Ray (3) is treated as of _ Exousn doubtful authority. The next question is the effect of Koch's S¢o7ms™ AXP guarantee and his letter. The bank cannot succeed against him, Bayx Lrv. because (a) the guarantee is collateral, and, if the principal debt is = destroyed, then the guarantee falls with it; the cases show that

the debt is destroyed altogether (McDonald v. Dennys Lascelles Ltd.

(4)); (6) the guarantee was a continuing guarantee and part of

its consideration was illegal ; (c) the guarantee became an integral

part of the illegal transaction and consequently falls with it; (d)

under the terms of the guarantee it is to pay the company's indebted-

"ness on demand, and at its date there was no indebtedness. Koch

-can recover back his documents (Smith v. Bromley (5); Pendlebury

y. Walker (6); Mare v. Sandford (7); Rowlatt on Principal and

Surety, 3rd ed. (1936), p. 168; Clay v. Ray (8); Featherston v. Hutchinson (9); Scott v. Gillmore (10); Lound vy. Grimwade (11) ;

McKewan v. Sanderson (12) ). The effect of the illegal transaction

'is that the original debt is destroyed (Ex parte Phillips; In re

Harvey (13); Mayhew v. Boyes (14) ). Therefore the surety cannot

be called on to pay it. Furthermore, on demand there was no debt

-due by the debtor (Smith's Leading Cases, 13th ed. (1929), vol. 2,

p. 412). Wilson v. Ray (3) is distinguished because in this case

payment was not voluntary but was made under a threat by the

Reed K.C. (with him Moulden), for the respondent. (a) With Tespect to the arrangement in 1936, it was not a fraud on creditors but was perfectly lawful. (b) This arrangement was made subse- -quently to the composition agreement being entered into and at. -a time and in circumstances when and in which the bank was entitled to make such an arrangement. It is not disputed that if

(1) (1877) 7 Ch. D. 650, (7) (1859) 1 Giff, 288, at p. 295 [65 (2) (1861) 6 H. & N. 778 [158 E.R. E.R. 923, ai

321). (8) (1864) IT C.BD (3) rare) 10 A. & E, 82 (13 ER.

. S. 188 (144 E.R. (9) (iss) Cro. Eliz. 199 [78 E.R.

455). (10) (1810) 3 Taunt. 226 [128 E.R. 90]. (5) (1700) 2 Dong. 696 (99 E.R. 441). (11) (1888) 39 Ch. D. 605. (6) (1841) 4 Y. & C, 424 [160 E.R. (12) (1875) L.R. 20 Eg. 65, at p. 1072}. (13) (1888) 36 W é (14) (1910) 103 LT. 1.

Ww E. T. Fisuer & Co. Pry. Lr. v. Enouisn Scorris aND AUSTRALIAN Bayk Lr.

the arrangement had been contemporaneous with the composition different considerations would have applied. But the essential element that makes an arrangement illegal in such circumstances is that it is made at a time when all creditors are entering into a composition which is based on mutual forbearance. Cases cited are all to the same effect. They show that the secret arrangement was. contemporaneous with the composition (Cockshott v. Bennett (1) ). There it is shown that the basis of the rule is a fraud on the creditors at a time when they are considering entering into an arrangement with one another. But it is equally clear that after the composition is completed the debtor can revive the original debt for a go consideration. It is a distinct transaction from the compositi and it does not render the other creditors more remote from getti their money. In fact, in this case, as a result of the transacti they got their money. Leicester v. Rose (2) lays down the same principle (Knight v. Hunt (3) ; Wood v. Barker (4) ). " [Srarke J. referred to Mahalm v. M'Cullagh (5).] In those cases the arrangement which was made endangered the assets. A debtor under a composition is left with his assets, and a creditor must do nothing whereby those assets may be diminished and other creditors be left without sufficient assets. If the assets. for the payment of the composition are not affected by a genuine - subsequent arrangement, then the debtor can for a good considera- tion agree to pay his debt to any creditor in full. In this case the company could have borrowed the money from anyone, including the bank, to pay off the trustee to enable him to pay the creditors _ the amount agreed on and the next day agree with the bank to pay its debts in full. The bank was paying the money to complete the composition and in fact did not diminish the company's assets. so that other creditors would have less to have recourse to. This. agreement being after the composition, it is unimpeachable (Zook v. Tuck (6); Carey v. Barrett (7); Wood v. Barker (4) ; Wilson v. Ray (8)). Ex parte Barrow; In re Andrews (9) is distinguishable in that the composition was endangered and the Bankruptey 4d 1869 forbade any variations in the composition. In Ha parle Burrell ; In re Robinson (10) the agreement was before the composi- tion, but here the payment was made by the bank to complete the

(1) (1788) 2 T.R. 763 [100 E.R. (6) (1827) 4 Bing. 224 (130 ER. : 411). 755]; sub nom. Tuck v. Tooke, - (2) (1803) 4 East 372 [102 E.R. 874]. (1829) 9 B, & C. 437 [109 ER.

(3) (1829) 5 Bing. 432 (130 E.R. 163). 112 (7) (1879) 4 C.P.D. 379, at p. 382.0

(4) (186: 1 Eq. 139, at p. 145. (8) (1839) 10 A. & EL, at p. 86 (13 (5) (1891) 27 L.R. Ir, 431, at p. 449; E.R. at p. 34]. 29 LR. Ir, 496, (9) (1881) 18 Ch. D, 464 23

64. C.L.R.] OF AUSTRALIA. or composition. In Mallaliew y. Hodgson (1) the case depended upon 4- ©. oF 4. the agreement being contrary to the Bankruptcy Act. sa " Acts ET. F Ligertwood K.C., in reply. Po meng Cur. adv. vult. Pry. Lro. Ewotast

The following written judgments were delivered :- Soorrisit AND Ricu A.C.J. I have had the advantage of reading the judgment AUSTRALIAN an Baty Bawk Lrp. of my brother Williams and agree with it.

Dee. 12 Srarke J. Appeal and cross-appeal from a judgment of the Supreme Court of South Australia. The facts of the case are so fully stated in the judgments of Angas Parsons J. in the Supreme Court and my brother Dudley Williams in this court that I shall confine myself to the questions of law which arise for determination. In compositions with creditors, the giving up of part of their claim by creditors is a valid consideration for each one giving up a part and accepting a composition in discharge of the whole debt. 'The essence of a composition arrangement is " that the creditors who take part in the scheme act upon the faith and understanding that they are all coming in upon terms of equality, and if a deed is prepared to carry out this equal distribution, every creditor who executes it does so on the faith that there is no private bargain with any of the other creditors which will destroy this equality " (Ex parte Milner ; In re Milner (2) ). Consequently, any private or under- hand dealing in favour of a particular creditor contemporaneously with the composition for the benefit of the general body of creditors is illegal (Ha parte Barrow ; In re Andrews (3) ). A consequence is that the creditor cannot sue for his original debt because his debtor may plead satisfaction or discharge under the composition, and he _ cannot sue for the composition because the whole agreement with the creditor is infected with illegality (Mallaliew v. Hodgson (4) ; In re Myers ; Ex parte Myers (5); Ex parte Phillips ; In re Harvey (6); Mayhew v. Boyes (7) ). The question in this case is whether an agreement or transaction _ between the respondent bank and the appellant company and to which the other appellant (Koch) assented is illegal, The bank was a creditor of the company, and Koch was a guarantor of the company. The bank was a party to a composition with the com- pany's creditors. After the composition arrangement had been

Ww con 16 QB. 689 [117 E.R. (4) (1851)16Q.B., at p. TH [IITE.R., at p. 1053). (2) (ss 15 Q.B.D. 605, at pp. 615, (5) (1908) 1 K.B. 941. 616. (6) (1888) 36 W.R. 567. (8) (1881) 18 Ch, D., at p. 471. (7) (1910) 103 L.-T. 1.

H.C. or A. entered into, and before it was completed, an agreement was m

between the bank and the company, in which the guarantor joined, whereby the bank agreed to advance to the company a sum of money sufficient to enable it to pay the balance of the compositi due to the creditors under the composition arrangement and to further advances to the company in consideration of it accep' liability for the sums advanced and also for all money in which the company would have been indebted to the bank if the composition arrangement had not been made. By this means, the bank wo do obtain the payment of its debt in full, whilst the other creditors who were parties to the composition arrangement would only obtai the amount agreed upon as a composition in discharge of their debi Such an arrangement, it was said, destroyed equality amongst company's creditors, which was the essence of the composition arrangement (Ex parte Barrow (1) ).

The law, however, does not debar a debtor from paying his j debts if he can, whether he is protected by a release in bankrupte or not (In re Bonacina; Le Brasseur vy. Bonacina (2)). So, a contract by an undischarged bankrupt, in consideration of a small loan, to pay in full a debt due from him at the commencement of and provable in bankruptcy is not void as contrary to public policy or the Bankruptcy Acts (Jakeman v. Cook (3); Wild v. Pucker (4); Took v. Tuck (5) ). A bankrupt, however, gives up his property for the benefit of his creditors, whilst in the case of a composition - the debtor is frequently left in command of his assets: a free man entitled to all the rights of ownership and disposition over every - part of his property (Ex parte Burrell ; In re Robinson (6) ).

After a composition has been fully and finally worked out, no~ doubt, I think, can exist that a debtor could lawfully make an agree-_ ment for valuable consideration to pay in full the original debt of - ; a particular creditor. The position of the debtor in such a case would be the same as that of a debtor who had obtained his discharge _ in bankruptey (Ex parte Barrow (7) ). Again, moneys, I should think, might in the present case have been borrowed from a stranger : and the composition so paid. An agreement then with the bank to make advances to the company and in consideration thereof to pay in full the original debt would be lawful, though the borrowed moneys were repaid from the bank's advances. But still the question

(1) (1881) 18 Ch. D. 464. (5) (1827) 4 Bing. 224 [130 BR. i (2) (1912) 2 Ch. 394, at p. 401. 755); sub nom. Tuck v. Tooke, (3) (1878) 4 Ex. D. 26. (1829) 9 B. & C. 437 (109 ER. (4) (1914) 3 K.B. 36. 163}.

(6) (1876) 1 Ch. D., at pp. 547, 551. (7) (1881) 18 Ch. D., at p. 470.

remains whether the agreement made between the company and the bank is inconsistent with good faith to the other creditors, who

agreed to accept the composition, and so infected with illegality. an ane

Ex parte Barrow (1) was relied upon. That case turned upon the facts and the provisions of the Bankruptcy Act 1869 governing com- positions made pursuant to its terms, particularly sec. 126. It

does not expressly decide the question here in contest, but there are "sy sreatraw

some observations in the judgment of Lord Selborne (2), in which Brett and Cotton L.JJ. concurred, which are pertinent to the present case. The facts were : - In April of 1879 Andrews, a debtor, filed a liquidation petition, and the creditors resolved by proper statutory majority to accept a composition of 5s. in the pound in satisfaction of their debts, to be paid by instalments. The resolution was regis- tered. In August of 1879 Barrow, one of the creditors bound by 'the resolution, entered into an agreement with the debtor, before the first instalment of the composition became due, that his debt should be paid in full and that he should continue to supply the debtor with goods on credit. The pertinent observations of Lord Selborne are : - 1 must add that there have been many decisions both in courts of law and in courts of equity against the validity of underhand dealings in favour of a particular creditor contem- poraneously with a composition for the benefit of the general body of the creditors, and it appears to me that the principles of those decisions are fully and entirely applicable to the present case. But it is said that fresh credit was given by the appellant to the debtor, and that in this way there was a consideration for the agreement to pay the old debt in full. That might well be so in a case like Jakeman vy. Cook (3), where there was no question of good faith with the other creditors, and no question of compliance or non-compliance with the terms of composition resolutions. But no consideration can oe an agreement which is inconsistent with good faith to the creditors, and with the spirit of sec. 126." The judgment 'tecognizes that a private dealing in favour of a particular creditor contemporaneously with a composition for the general body of creditors is inconsistent with good faith, but it goes further. The bag was also expressed that the private agreement in that case for the benefit of a particular creditor, though not made contem- poraneously with the composition agreement, could not stand together with the composition for the benefit of all the creditors for 'it was inconsistent with good faith. The result of the private agreement might be the sweeping away by the particular creditor

(1) (1881) 18 Ch. D, 464. (2) (1881) 18 Ch. D., at p. 471. (3) (1878) 4 Ex. D. 26.

E. T. Fisuer & Co. Pry. Lro. v Enouise Scorrisn aND AUSTRALIAN Bank Lrv.

of the whole body of the debtor's assets. Took v. Tuck (1) is not, I think, opposed to the opinion expressed in Ex parte Barrow (2), The allegations made in the pleadings in that case were not incon- sistent with good faith: indeed, they were apparently consistent with the debtor having paid the composition and " become a free man." Best C.J., however, stated the ground upon which the courts hold that a private agreement for the benefit of a particular creditor contemporaneously with a composition agreement is illegal: "It is the pretending to accept the same terms as the other creditors, a so encouraging them to come into the arrangement, when the party so pretending has at the time secured to himself some advantage, 0 which the others are not to partake " (3). He does not assert th agreements made subsequently to the composition agree destroying the equality of creditors, parties to the composition agreement, and inconsistent with good faith, are lawful. He was I think, dealing with the particular case and making clear that the pleadings did not allege the fraud he mentioned or any other dealing that was necessarily inconsistent with good faith. The nature of the agreement and the circumstances of the case must in the end determine whether any particular agreement is inconsistent with good faith and consequently unlawful. 4

In my judgment, the arrangement in this case between the bi and the company which has been attacked is not illegal. It is inconsistent with good faith towards the other creditors of the company. In April of 1936 instalments of the composition which had fallen due had not been paid, though they were secured by a charge. It was in the interest of the company to pay the co position and become free of that obligation and the charge in re! thereof over its assets and to obtain financial assistance for the purpose of carrying on its business. It was equally desirable from

the company accepted liability for the further advances and original debt. It was a business operation beneficial alike to the company, the other creditors, and the bank. *

it does not provide for the equal treatment of all the creditors, but that contention fastens upon one feature of the arrangement and

(1) (1827) 4 Bing. 224 [130 E.R. 755]. (3) (1827) 4 Bing,, at pp. 5 [130 E.R., at p. 757).

payment of the composition to the creditors. In Ex parte Barrow (1) there was no provision for any payment to the other creditors. And, in my opinion, that unhappy branch of the law, public policy, affords no satisfactory basis for invalidating a business arrangement the carrying out of which is beneficial to all who were interested in the company's affairs. Indeed, it is a strong thing for the company and its guarantor to complain of an arrangement in which they joined and reaped the benefits.

The company also sought to avoid its liability by another line of reasoning. It was said that what has been referred to as the com- position arrangement of 1934 did not operate as a composition. 'That arrangement provided that, if certain sums were paid on or before August 1936 and the terms and stipulations of the arrange- -ment observed by the company, then those sums would be accepted and taken by the several creditors in full satisfaction and discharge

of the debts of the creditors set forth in the arrangement. The company did not punctually pay all the instalments under the "arrangement and did not, I understand, observe all its terms and stipulations. The creditors, however, did not renounce the arrange- "ment, but accepted about May 1936 payment of the balance of the composition then due. The bank, it is said, also stood to the composition in 1936 and in that year arranged with the company to pay the composition and so, contemporaneously with the other creditors, manifested its intention of also accepting the composition arrangement of 1934 without disclosing the new arrangement to the other creditors. This reasoning, however, is but the same contention over again, namely, that the arrangement of 1936 is inconsistent with good faith towards the other creditors. In my opinion, for 'the reasons already given, that contention ought not to succeed. 'The company therefore fails in its appeal.

'The failure of the company's appeal makes it unnecessary to consider many ingenious arguments raised on behalf of the company's guarantor, the appellant Koch. But one submission requires con- sideration. In 1934, when the composition arrangement was made, Koch in a letter to the bank informed it that the charge given by 'the company to the trustee for creditors was not to prejudice or adversely affect in any way the guarantee given by him to the bank, which should "remain in full force and virtue according to the tenor thereof, notwithstanding the fact that there are further operations upon the account at the bank by the company and further moneys lent ; and notwithstanding that the bank shares the benefit of the charge upon the property of E. T. Fisher & Co. Ltd. in favour

E. T. Fisuer & Co. Pry. Lap. e ENGLISH ScorrisH AND AUSTRALIAN Bank Lrp.

E. T. Fisoer & Co. Pry. Lrp. Dy Enouisn ScorrisH AND AUSTRALIAN Bank Lrp.

of Mr. Ferres and in due course may receive satisfaction pro tant and participate in the funds to accrue under the charge." added: " Provided always that discharge in full by payment unc the said charge shall release me from the guarantee." Koch non submits that, upon the proper construction of this letter, he w

the letter is erroneous. The debt of the bank was stated in thy composition arrangement to be £8,998 15s. 8d., although it actually amounted to £10,656 or thereabouts. The proviso is directed to th fact that the bank may benefit from the future operations of company and from the charge, so it provides that discharge in of moneys owing to the bank by payment under the charge shall release the guarantor. But it does not provide that he shall

deleting the declaration numbered 2 and the order numbered 3, and the action No. 843 of 1939 by Koch against the bank should dismissed.

Accordingly, the appeal of the company and Koch should bi dismissed and the cross-appeal of the bank allowed.

McTiernan J. I agree that the appeal should be dismissed the cross-appeal allowed. .

The principal question in this case is whether the stipulation the agreement made in 1936 between the bank and the compal for the payment in full of the bank's debt was " in fraud of creditors. Upon the allegation that the stipulation was of this character the appellants found elaborate defences to the bank's action and co claims for relief. These need not be gone into unless the suppo upon which they depend be true.

Does this stipulation, which the appellants charge to be in of creditors, assume the character of an underhand bargain giv the bank some advantage over other creditors of the com when it is placed side by side with any composition agre' between the company and its creditors, including the bank ? Iti impossible to find any ground for attributing to it that character. -

The appellants rely upon'two arguments to support the allegat of fraud. The first is that the stipulation was made while the composition agreement was still executory and was made without the knowledge of all the creditors. The second is that the comp tion under which the debts were satisfied and discharged was maa

in 1936 when the creditors received the balance of the composition H. ©. or A. which they had agreed to accept under the composition arrangement ee made in 1934 and that in relation to the supposed composition in » 7 Fisuen _ 1936 the stipulation for payment in full of the bank's debt gave the - & Co. bank an advantage over other creditors in the composition which P*¥ 1". concealed from them. _ Esouisn As regards the first argument, the executory state of the com- ScOTms NP

• position at the time the impugned stipulation was made has not in Baxx Lro. Taal any bearing on the question whether the stipulation was in yricman J. fraud of the creditors. The decisive consideration is that the ~ composition had already been made, and it was not made in pursuance d of any such understanding as would falsify the representation which
• the bank made by becoming a party to the composition agreement. Thereby it represented that it, like the other creditors, was consenting _ to forgo so much of its demand upon the company as appears from the terms of the agreement. That representation was quite true. Indeed, it is quite clear from the case that the stipulation was not _ contemplated when the composition arrangement of 1934 was signed.

The second argument seeks to fix a composition at such a time _ that it would clearly have been in fraud of the creditors for the

bank to have procured or retained an arrangement for the payment

of its debt in full. The foundation of this argument is that, as the conditions of the composition agreement of 1934 had not been fulfilled and the creditors had, therefore, become entitled inter se to demand payment in full, a new composition was in fact made when each creditor accepted in full satisfaction and discharge : payment of the composition stipulated in the previous composition _ agreement. The argument assumes that there was a consensus . among the creditors to make a new composition in place of the _ previous one. The facts are not susceptible of that inference. In _ my opinion, they leave room for no other inference than that each _ ereditor accepted the payment of the balance of the composition ' 'stipulated in the composition agreement of 1934 as a performance

= that agreement. In my opinion, this argument also fails. £

It follows that, in so far as the defences of the appellants and their _ claims for relief depend upon the charge that the bank made an agreement in fraud of creditors, these defences and claims fail.

'The company's defences and claims for relief depend exclusively on this allegation of fraud.

_ The defence and claim that the surety bases on the letter of 11th _ July 1934 also fail because the letter upon its true construction Vou. Lxiv. 2

1940,E. T. Fisner & Co, Pry. Lro. v. Enouisi ScorrisH AND AUSTRALIAN Bank Lrp.

does not manifest an intention on the part of the bank to releas the surety from his liability to pay the full amount of the compa debt to the bank within the limit of the guarantee.

Wiu1ams J. . This is an appeal and cross-appeal against a ju

Ludwig Koch. Briefly stated, the bank sought judgment a; the company and Koch for the sum of £7,048 3s. 6d., the bala

1928. It became a customer of the bank, which granted it time to time substantial advances by way of overdraft. The s holders of the company were Koch, who held 24,476 shares, L who held 751 shares, and three other shareholders, who held share each. Koch and Lower were directors of the com Lower was also the manager of the company. On 17th December 1929, in order to secure the company's overdraft, Koch gave bank a guarantee mortgage containing a personal covenant over the land on which the company was carrying on its business, which belonged to him, and over a house in a suburb in Adelaide which he owned. The mortgage provided that the acceptance of a composition by the bank should not in any wise discharge Koch from any liability therein contained nor otherwise affect or prej the security. This mortgage was stamped to cover advances up to £6,000. The company's business expanded, and its overd exceeded £6,000. On 1st August 1930 Koch gave the bank a guarantee to secure advances to the company up to £10,500. guarantee contained a similar clause to the guarantee mortgage with respect to compositions.

Towards the end of 1930 the company got into financial difficull and from then on until 3rd August 1934 was unable to pay its debts. A meeting of creditors was held on 16th December 1931, when it was resolved that the business should be carried on under the suj vision of L. W. Ferres. Various plans were suggested to enable tht

company to carry on its business and pay its debts, and eventually 4. ©. oF 4. the creditors assented to a composition scheme which is embodied rat in the indenture of charge dated 3rd August 1934. Ferres' manage- p 7, Fisuer 'ment of the company had not been a success ; he had only succeeded _ & Co. in paying the creditors 1s. in the £1, and on 18th April 1934 Koch at a 'and Lower had resumed the management of the company so that _ Exouisn at the date of the indenture of charge they were in charge of the omen of the company. The provisions of the indenture of charge Baxk Lrv. were assented to by all the creditors of the company. The indenture wijtiams 3. 'contained a recital of the company's debts, which were shown at a total of £11,951 7s. 10d. The debts were itemized and were 'stated at the original amounts shown to the meeting of creditors "held on 16th December 1931, less the dividend of Is. in the £1, so it no creditor was allowed any interest after 31st May 1931. The sum of £11,951 7s. 10d. was described as the sum " hereby secured." ere Was a covenant that the company would pay the sum thereby "secured at the times, in the instalments and in the manner set forth in the conditions annexed to the indenture. Then followed a proviso that "if the company shall pay to the trustee the sum of seven thousand five hundred pounds (£7,500) (together with the sum of four hundred and fifty pounds (£450) heretofore advanced to the company by the trustee out of the trust account hereinafter men- tioned and any further sum so advanced) on or before the 18th day: of August, 1936, and shall duly and punctually observe and perform all the covenants conditions agreements and stipulations 'herein contained and on the part of the company to be observed formed and kept the said sum of seven thousand five hundred ot (£7,500) (and such further sums) shall and will be accepted taken by the said several creditors or by the trustee on their in full satisfaction and discharge of the sum hereby secured." The creditors had therefore agreed that, subject to fulfilment by the iy of the conditions specified, they would accept a sum of ,500, or, in other words, 12s. 6d. in the £1, in full payment of their debts, _ During the negotiations which resulted in the execution of the inka of charge Koch had signed and delivered to the bank on 'lth July 1934 a letter in the following terms : - ' The debts due 'its creditors by E. T. Fisher & Co. Ltd., including the E. 8. & A. Ltd., will be secured as you know by the charge to be executed by that company in favour of Mr. L. W. Ferres as trustee for the "said creditors. Thave already guaranteed payment by the company tothe B.S, & A. Bank. This letter is to inform you that the charge to be given by the company to Mr. Ferres will not prejudice

or adversely affect in any way the guarantee given by me to th bank as mentioned above. This guarantee will remain in full fore and virtue according to the tenor thereof notwithstanding the fa that there are further operations upon the account at the bank by the company and further moneys lent and notwithstanding the bank shares the benefit of the charge upon the prope E. T. Fisher & Co. Ltd. in favour of Mr. Ferres and in due co may receive satisfaction pro tanto and participate in the accrue under the charge. Provided always that discharge in by payment under the said charge shall release me from th guarantee." After the execution of the indenture of charge company continued to carry on its business under the manag of Lower and from time to time made payments of the ins to Ferres as trustee for the creditors. But in 1935 it fell into am and thereafter remained in arrears with the instalments. In 1936 the arrears were £575. On 24th March 1936 Robertson, branch manager of the bank in Adelaide, wrote a letter for th information of the joint general managers of the bank in Melbourn Its effect was that the bank should provide the company immediat with a sum of £1,833 to pay to Ferres. This with the moneys a paid by the company to Ferris would make up £7,500. Ferres to give a full discharge on behalf of the creditors. As a condition of making the advance, the bank was to obtain from the company a debenture to cover, not only the £1,833, but the whole balance o the company's overdraft with full compound interest charged fi December 1931. In other words, while the other creditors were get a composition the bank was to get its debt in full. The joim general managers gave their approval to this scheme on 2nd Apr 1936. Robertson approached Lower and got his approval to the scheme, and correspondence then took place between Roberts Lower and Koch, during the course of which Koch also appro A new debenture was prepared by the bank's solicitors and executed by the company on 27th April 1936. This debenture gave the bank an equitable charge over the whole of the com assets to secure all moneys in or for which the company was the or should for the time being be indebted or liable to the bank. provided that it should not affect any guarantee held by the b i" as security for the debt, and that it should be a collateral securit) with the guarantee mortgage.

On 28th April 1936 the amount required to make up the £7,500 was £1,825 10s. On that day the bank permitted Lower to dra a cheque on the bank on the company's behalf for £1,825 10s. Lower sent cheques to Ferres to pay the balance of the £7,500. 0

20th April 1936 Ferres gave a receipt for the £1,825 10s., being the H- C. or A.

balance due under the indenture of charge. On 8th May 1936 Ferres hr

distributed the moneys among the creditors (including the bank) by » p rsuen cheques enclosed in circular letters showing that the payments were | & Co.

the final dividend required to make up the £7,500. On the distribu- cian "pate

on the bank got back £1,373 15s. 2d. out of £1,825 10s. A full Exouse

arge of the indenture of charge was then prepared and executed S¢O"TIS# ANP

y Ferres on 14th May 1936. Ever since Ist December 1931 the Bask Lrn.

company's overdraft account with the bank had been a liquidation - witiams .

ecount. Substantially the only debits to it were for interest, and the

nly credits were the dividends received from Ferres. The interest

debited to May 1936 amounted to £2,317 12s. 3d. On llth May

1936 the bank closed the company's old account by transferring

the debit balance therein, amounting to £7,691 6s. 10d., to a new

ew debenture it was agreed between Robertson, Lower and Koch at the company should thereafter keep down interest on the over-

draft and in addition pay £500 a year off the principal. Pursuant to this arrangement the company, subsequent to the opening of the No. 2 account, made payments to the bank in respect to the over-

• draft aggregating £2,141 10s. About 18th May 1936 Koch, who was _living in Melbourne, visited Adelaide, and Robertson then pressed him for further payments and obtained a letter from him (prepared by Robertson) stating that he would make weekly payments of £10

'until £1,000 was paid. Following this letter Koch made payments "to the bank aggregating £575. These are the two amounts which the appellants seek to recover from the bank. The creditors, other

than the second largest creditor, Kemsley & Co. Pty. Ltd., were "not informed and had no knowledge of the company's having agreed a pay the bank's debt in full.

On 18th July 1939 the bank made demands upon the company and Koch for the payment of the balance due to the bank on the company's overdraft, which was then stated to be £7,065 1s. 7d.

amount was not paid, and the three actions already mentioned

_ The company and Koch allege that the bank is not entitled to "recover its debt or any part thereof because of its action in 1936 in _ arranging to advance the sum of £1,825 10s. to the company to poe it to pay Ferres the balance of £7,500 in consideration of the

"company agreeing to pay the bank the full amount of its debt for

and interest instead of the dividend of 12s. 6d. in the £1 n the sum of £8,998 15s. 8d. provided for by the indenture of charge. On behalf of Koch it is also contended that his liability on

H.C. or A. the two guarantees was determined when the bank was paid th 1940. dividend. There does not appear to be any substance in the second E. T. Fisner Contention, which is based on the construction of the proviso to the & Co. - letter of 11th July 1934. This proviso must be construed in the Pry. Lt. Jioht of the whole context of the document ; if it is ambiguous, itis permissible to have regard to the subsequent acts of the parties to ScomisH 4S ascertain the meaning which they themselves attributed to j Bank Lrv. (Watcham vy. East Africa Protectorate (1) ). The evidence shows Williams s, that the parties subsequently acted consistently on the basi that Koch remained liable under his guarantees for the full amount of the bank's debt. The proviso appears to me to re either to payment of the full amount of the bank's debt for principal and interest or to payment in full of the bank's debt mentioned in the recitals to the indenture of charge, viz., £8,998 15s. 8d. I not think it can mean, as suggested by the learned trial jud payment of the composition of 12s. 6d. in the £1. Such a construe tion does not give effect to the earlier part of the document which refers to the whole debt or to the words "in full" or " payment." I am strongly inclined to think that the true meaning is payment to the bank of the whole debt, because the proviso contemplai the bank making further advances to the company, and these wot not be included in the sum of £8,998 15s. 8d., but it is unneces: to decide between the two alternative constructions, because company never paid the bank either sum, so that on either construc- tion the proviso never operated. If it had done so, it would ha ' caused a release of both guarantees, as it is difficult to believe parties could have intended Koch to be released from the guarantee of 1930 and still remain liable on that of 1929. The proviso really refers in a compendious way to Koch's liability under the guaran and not to one or other of the documents themselves. The agreement for the composition made in August 1934 was one in which no creditor obtained any advantage over the others. There could be no objection to the bank having the additional rights i respect of the balance of its debt against Koch under the guaran
The original debt of the company to the bank had been discharg by the new agreement contained in the indenture of charge, but this original debt remained in force between the bank and Ko because the guarantees had each provided that the rights of bank against the guarantor should not be affected by the bat making such a composition. If, therefore, no further agreement been made between the company and the bank subsequently to he indenture of charge, there would have been nothing to prevent

bank from receiving its composition of 12s 6d. in the £1 from the trustee for the creditors and recovering the balance of its whole debt from Koch. _ It is necessary to consider what effect the events which occurred 'in 1936 had on these rights. Mr. Ligertwood, for the appellants, 'the company and Koch, has contended that in a composition with creditors any arrangement made with the debtor by one creditor nd which he gains or seeks to gain a preference over other creditors against public policy and is fraudulent and void ; that the effect of such an arrangement is to destroy the debt so that the creditor 'cannot sue for it; that when any such debt is guaranteed the guarantee is discharged by the fraudulent agreement; that any 'moneys paid under such arrangement whether by the debtor or by the guarantor can be recovered from the creditor ; and that securities taken in the course of the fraudulent arrangement must be delivered up to be cancelled. Summarized, his contention is that the contract "made between the bank and the company in 1936 was in breach of 'the agreement made between the creditors in 1934 to discharge their debts on receipt of a composition of 12s. 6d. in the £1 and was a secret benefit to the bank at the expense of the other creditors which vitiated and destroyed the rights of the bank to recover any moneys from the company or Koch under the guarantees or to recover the sum of £1,825 10s. advanced by the bank to the company to pay the final dividend on the composition from the company and entitled the company and Koch to recover from the bank the amounts of £2,141 10s. and £575 already mentioned and to have the debenture and guarantees delivered up discharged by the bank. It is clear that the contract by which the creditors mutually agree to forbear to sue for the full amount of their debts and to accept composition is a contract uberrimae fidei, and that, if any creditor makes a secret stipulation with the debtor for some additional benefit for himself, as, for instance, the payment of the balance of his debt, contemporancously with the contract for the composition, the law considers such a stipulation to be fraudulent and opposed to public policy and therefore void, and not only will not allow him to recover or retain any such secret benefit but also regards it as itiating and destroying his rights to recover his share of the com- ... At the same time the law considers the original debt to have been discharged by the composition, and the result is that the creditor cannot recover either the original or the compounded debt (Mallaliew v. Hodgson (1); Mayhew v. Boyes (2); Leake on Contracts, 8th ed. (1931), p. 595). None of the authorities, however, suggests (1) (1851) 16 Q.B. 689 (117 E.R. 1045). (2) (1910) 103 L.-T. 1.

wer E. T. Fisner & Pry. Lrv. v ENGLISH Scorrisn AND AUSTRALIAN Bayx Lop.

tainting ca occur. In the present case the debt of the company to the bank existing % in August 1934 had been lawfully incurred for advances made by Eycusn the bank to the company from time to time, and the bank could Spores have sued the company to recover this debt if it had not been Baxk Liv. discharged by the composition. This debt was guaranteed by Koch, Williams s. and his liability by express agreement with the bank was not rele by the composition (Perry v. National Provincial Bank of Englay (1) ), so that any fraudulent conduct of the bank in relation there would not invalidate its rights against Koch. The agreement between the company and the bank in 1936 was not contemporaneous with the composition deed. It was made ty years subsequently thereto and was an entirely distinct and separate agreement. It was entered into while payments had still to made under the indenture of charge, so that the composition was still executory, but it did not hinder the creditors being paid. fact it facilitated payment because the bank provided the nec: moneys to pay the final dividend. A creditor who enters into ; composition acts properly so long as he makes full disclosure at tl time to all the other creditors of any agreements he may have with the debtor for a preference. After the deed has been executed debtor is freed from the balance of the debts beyond the divid he has agreed to pay. Each creditor has forborne to sue for th balance of his debt in consideration of the other creditors forbearing to sue for the balance of their debts, and the debtor has been rele from the original debts and therefore from all these balances. debtor is left the master of his assets so far as they are not char or otherwise dealt with by the composition. It is to his interest | pay the creditors the amount of the composition and discharge h obligations to them. It is to their interest to be paid. To rai the necessary funds to pay the creditors the debtor can make new bargain he likes, and if he makes a bargain with one of th creditors he can agree to pay the balance of that creditor's old debt. The creditor who executes a composition deed only agrees to forl to sue for the balance of his debt under a then existing right. does not agree not to acquire a new right to recover the balance for some new consideration such as a further advance. In Ea parle Barrow ; In re Andrews (2) Lord Selborne pointed out that there have been many decisions against the validity of underhand dealings

(1) (1910) 1 Ch. 464. (2) (1881) 18 Ch. D., at p 471.

in favour of particular creditors contemporaneous with a com- H- ©. oF A. ion by the general body of the creditors. In Took v. ae (1) the decision was based to a great extent on the form of g 7 Fisuer plea. The judgments, however, contain several statements to - & Co. ie effect that a bargaining by a creditor with the debtor for the P™.,"- it of his full debt subsequent to the execution of the com- Bouse ition agreement is not fraudulent. Best C.J. said: "It is the a ing to accept the same terms as the other creditors, and so Baxk Lp. aging them to come into the arrangement, when the party so witiams J. has at the time secured to himself some advantage, of rhich the others are not to partake, which constitutes the fraud on other creditors" (2). Liittledale J. said: "I agree that the day as the time when the bond was given is not material, but must take it to have been given after the agreement for the 'ition ; and unless it was part of the same agreement it was a fraud" (3). This case was referred to by Isaacs J. in Howden r. Cock (4). In Carey v. Barrett (5) Lord Coleridge said : " 1 believe vat the general understanding of the profession has been that a iyment in excess made afterwards will not avoid the composition, ess made in pursuance of a previous understanding." In In re erg's Policy (6) Hall V.C., said: "It is therefore not clear that the ng of the memorandum was a distinct transaction." It is estab-

balance of the old debt is valid if made when the composition agree- ment has been fully executed by payment and the discharge of the : See Knight v. Hunt (7); Wild v. Tucker (8). There does i appear to be any distinction in principle between an agreement y the debtor with one of his creditors to pay the balance made

to payment thereof. If the agreement was to pay such nee in priority to or in competition with the composition, then creditors would be prejudiced because the debtor would be loying assets for his purpose which would otherwise be available the creditors generally, and such an agreement might be unlawful. once the composition has been paid or payment has been ed for, it is immaterial to the creditors how the debtor disposes his assets, He is then free.

) (827) 4 Bing. 224 (130 ER. (8) (1820) 9 B. & Cat p. $45 [109

}; 8 and, on appeal, sub nom. E.R., at p. 166 Tooke, (1829) 9B, & C, (4) (1915) 20 C.L. ie 63). (5) (1879) 4 ¢.

Bing., at pp. 228, 229 (6) (1877) 7. at p. [130 ne at p. 757). (7) (1829) 5 Bing. 432 [130 E.R. 1127}.

'? provided the sum necessary to complete the composition and th

In the present case the bank could have advanced the £1,825 10s to pay the composition and immediately after it was paid agreed with the company for the payment of the balance of the ol debt. Such an agreement would have been valid, and there doe not appear to be any distinction in principle between such an agree ment and the agreement in the present case whereby the ban

company agreed that subject to such completion the bank was 1 have a security over the company's assets for the balance of th old debt, the advance of £1,825 10s. and any further advances mad at its pleasure. 4

Mr. Ligertwood contended that, although the agreement for compromise was entered into in August 1934, it was condition upon the instalments being punctually paid, so that the compromi only took place in May 1936, when the creditors accepted the fin dividend and thereby waived their rights to recover the full amount

compromise and fraudulent and void because the creditors, in deciding whether or not to accept the final dividend in full discha of their debts, ought to have been told that the bank was to re its full debt. The material date, however, to determine whethe1 the bank had stipulated to receive a secret benefit or not must br August 1934. That was when the creditors agreed to accept the 12s. 6d. in the £1 subject to the performance of conditions wh they could waive, the most material condition being that the mom

should be paid on or before 18th August 1936. The final dividend was paid on the basis that it was to be accepted as the comple of this composition. The circular letter of 8th May 1936 n this clear. The only agreement between the creditors for a com position was that made in August 1934, The subsequent pa' were made in purported performance of that agreement. The I agreement was not contemporaneous therewith. It was a sub quent, separate and independent agreement altogether ; the val of such an agreement could not depend upon whether the instalme were or were not in arrears at the time it was made. If it is com that the composition provisions of the indenture of charge had bi extinguished by the failure of the company to pay the instalme regularly, then there was no agreement for a composition in 1936 and each creditor was entitled to the full amount of his recited d and free to make any bargain he liked with the debtor which not a breach of the provisions of the indenture of charge still in force, without reference to the other creditors.

In my opinion, therefore, the bank was entitled to enter into the H- ©. or 4. ement of 1936; even if it was not, the appellants would not be os

tly advantaged, because the only agreement that would become » 7, Fysuen nt and unenforceable would be the agreement of 1936. - & Co.

wid in relation to the agreement of 1936 could not affect the orn y of the composition agreement or the obligation of the _ Exousa

ety to pay the whole debt. The £1,825 10s. the bank paid to S{0urs" ASP

Myers (1) ); but equity would only order the debenture - witiams 3. o be discharged upon the company doing equity and repaying the jount of this and any subsequent new advances less the sum of 10s. (Langman v. Handover (2)). The bank could not the difference between the amount of the composition and amount of this old debt from the company but would still

these reasons I am of opinion that the appeal should be ed, but the cross-appeal should be allowed.

Appeal dismissed with costs. Cross-appeal allowed with costs. Judgment and order of Angas Parsons J. varied by discharging so much of it as declared and ordered that the quarantee dated 1st August 1930 and referred to in the writ of summons in the action in the said Supreme Court No. 651 of 1939 had been duly discharged and that it be delivered up to the said John Ludwig Koch. Order that the action in the said Supreme Court No. 843 of 1939 by John Ludwig Koch against English Scottish and Australian Bank Ltd. be dismissed.

citor for the appellants, @. V. Culshaw, Adelaide, by Bullen ors for the respondent, Moulden & Sons, Adelaide, by Trevor