Re A Debtor
[1937] 1 All ER 1No 627 of 1936
Re A Debtor
Court:
Judges:
Slesser LJ
Romer LJ
Greene LJ
Subject References:
Bankruptcy
Married woman
Debt not in respect of business
Guarantee given in 1933
Payment under guarantee in 1936
Legislative References:
Law Reform (Married Women and Tortfeasors) Act 1935 (c 30) - s 4(1)(c)
Case References:
Morrice v Redwyn - (1731) 2 Barn KB 26; 26 Digest 130, 937
Woffington v Sparks - (1754) 2 Ves Sen 569; Digest Supp.
Re Richardson, Ex p St Thomas's Hospital (Governors) - [1911] 2 KB 705; 5 Digest 673, 5958
Toussaint v Martinnant - (1787) 2 Term Rep 100; 26 Digest 131, 948
Re Mitchell, Freelove v Mitchell - [1913] 1 Ch 201; 26 Digest 128, 915
Batard v Hawes, Batard v Douglas - (1853) 2 E & B 287; 26 Digest 145, 1080
Collinge v Heywood - (1839) 9 Ad & El 633; 26 Digest 241, 1881
Brittain v Lloyd - (1845) 14 M & W 762; 12 Digest 520, 4325
Lampleigh v Braithwait - (1615) Hob 105; 12 Digest 522, 4341
Crampton v Walker - (1860) 3 E & E 321; 26 Digest 138, 1021
Hamilton v Goold - (1839) 1 ILR 171; 6 Digest 40, case c.
Brooks Wharf & Bull Wharf Ltd v Goodman Bros - [1936] 3 All ER 696; Digest Supp.
Angrove v Tippett - (1865) 11 LT 708; 26 Digest 241, 1883
Re Fenton, Ex p Fenton Textile Assocn Ltd - [1931] 1 Ch 85; Digest Supp.
Exall v Partridge - (1799) 8 Term Rep 308; 26 Digest 131, 947
Judgment date: 18 December 1936
In 1933 the petitioning creditor guaranteed the bank overdraft of the debtor, who was a married woman and not a trader. In 1936 the bank required the petitioning creditor to pay under the guarantee. The petitioning creditor obtained judgment against the debtor for the amount so paid to the bank and in due course served a bankruptcy notice on her. The debtor failed to comply with the notice and the petitioning creditor thereupon served a bankruptcy petition:-
Held - the implied undertaking by the debtor to repay to the petitioning creditor the money paid on her behalf arose at the time of the guarantee in 1933. The obligation was, therefore, one incurred in 1933, that is, before the passing of the Law Reform (Married Women and Tortfeasors) Act 1935, and the debtor could not be made bankrupt.
Notes
Before 2 August 1935, a married woman could only be made bankrupt if she was carrying on a trade or business, but on and from that date she is subject to the bankruptcy law in all respects as if she were a feme sole. Nothing, however, is to enable any judgment or order against a married woman to be enforced in bankruptcy if it is in respect of a contract entered into, or debt or obligation incurred before 2 August 1935, that is, the date of the passing of the Law Reform (Married Women and Tortfeasors) Act 1935. In the present case a debt of a married woman was at her request guaranteed before 2 August 1935, but payment under the guarantee by the guarantor was not made till after that date. Clearly there was no debt before actual payment under the guarantee, but the court was of the clear opinion that there was a contract or obligation entered into at the time the debt was guaranteed at the request of the debtor, that is, before the passing of the above Act. The contract or obligation was one to indemnify the surety if at any time he or she should be called upon to pay under the guarantee. In coming to this view the court relied upon the cases of Brittain v Lloyd and Batard v Hawes.
As to the Nature of a Surety's Obligation, see Halsbury (Hailsham Edn), Vol 16, p 104, para 111, and for Cases, see Digest, Vol 26, pp 146, 147, Nos 1099-1103. For the Law Reform (Married Women and Tortfeasors) Act 1935, see Halsbury's Complete Statutes of England, Vol 28, pp 104-107.
Appeal
Appeal from an order made by Mr Registrar Parton on 21 September 1936, dismissing a petition in bankruptcy presented by a judgment creditor against a debtor who was a married woman and not a trader. On 28 May 1936, the petitioning creditor obtained a judgment against the debtor for £528 4s 9d, the amount of a repayment made on 21 February 1936, by the creditor under a guarantee dated 7 September 1933, given by her on behalf of the debtor to the debtor's bank. The debtor failed to comply with a bankruptcy notice, and the creditor presented a petition asking that a receiving order should be made against the debtor. At the hearing before the learned registrar the debtor opposed the making of a receiving order on the ground that at the time the obligation was incurred she was a married woman and not amenable to the bankruptcy law. The Law Reform (Married Women and Tortfeasors) Act 1935, s 4(1)(c), which came into force on 2 August 1935, brought married women within the bankruptcy jurisdiction, and the question at issue was whether the debt or obligation arose before or after the coming into force of that Act. The learned registrar held that the obligation was incurred before the passing of the Act, and although it did not ripen into a debt or right of action at law until after the passing of the Act, it nevertheless remained within the operation of the Act. He therefore refused to make a receiving order, and the creditor appealed.
W A L Raeburn for the creditor.
G F Kingham for the debtor.
Raeburn: In order to come within the exemption laid down in the Act, a married woman must show that an attempt is being made to enforce in bankruptcy a judgment or order obtained against her in respect of a debt or obligation incurred before 2 August 1935. The present debt or obligation arose out of the payment of money for the use of the debtor on 21 February 1936. Whatever obligation may have subsisted in equity before 2 August 1935, was not the obligation in respect of which the judgment was obtained, and that is the only obligation to which it is necessary or proper to look when applying the provisions of the Act. The judgment was in no sense a judgment in respect of any obligation incurred before the passing of the Act; the obligation merely arose out of the payment. Before the payment was made, the surety could not have obtained anything but a declaration in equity that the debtor was liable and a direction that the debtor should pay the debt. This was not the right upon which the creditor obtained judgment, and no bankruptcy proceedings could have been maintained on it, as there would have been no monetary obligation on the debtor to the surety. There is no debt in law until the surety has paid, and then there is an obligation in respect of money paid for the use of the principal debtor to the principal creditor.
Greene LJ: Suppose a contract is made in 1934 to pay £100 on the return of A B from Rome; A B returns in September 1935, when the Act is in force, and there is default; does the Act apply?
Raeburn: Yes, if the contract was made directly by the party who was to pay the £100 and the party claiming the £100.
Greene LJ: If two persons agree before the passing of the Act that if one is called upon to pay, and does pay, a particular debt, the other will indemnify him, and the payment giving rise to the indemnity is made after the Act; would not judgment on that contract be a judgment in respect of a contract entered into before the Act? From the beginning there is a contract between the principal debtor and the surety, that if the surety is called upon to pay, the principal debtor will reimburse him. Is not that an implied obligation arising from the very inception of the contract?
Raeburn: That implied obligation arises only out of the discharge. There is an equitable liability. The principle is clearly stated in Re Mitchell. It is, however, much older, and formed the basis of the decision in Collinge v Heywood: See also Angrove v Tippett. The right of a surety against the principal debtor before the surety has discharged the debt is an equitable right only: Re Fenton. In Re Richardson Fletcher Moulton LJ, said that the common law will not help a man to make profit out of what is merely an indemnity. If he wants to sue the principal debtor, he must show that he has paid the debt.
Kingham: The claim is in respect of this sum of money paid to the plaintiff for the use of the defendant. The particulars show that it is payable to the bank under a guarantee in writing dated 7 September 1933. That shows the implied obligation. The creditor gets the right to sue for money paid to the use of the debtor under the implied obligation or contract of the principal debtor to repay to the surety what he is called upon to pay. Reference must be made throughout to the original obligation which was incurred in 1933. The law is correctly stated in Halsbury's Laws of England (Hailsham Edn), Vol 16, p 101, para 111. The liability arises from the implied contract entered into at the time the guarantee was given. The money claimed here has been paid by the plaintiff for the use of the defendant, but the creditor shows in her particulars that she is in fact suing because she has had to pay moneys to a third party under a guarantee given by her.
Romer LJ: In such a form of action as this, the plaintiff must show that he has paid the money at the request of the defendant, or that he has been compelled to pay, the obligation to pay having been incurred at the request of the defendant. The present creditor shows by her particulars that she is compelled to pay since she has guaranteed the debtor's banking account. Where a debtor guarantees a debt at the request of the debtor, then, if he is called upon by the principal creditor to pay and does pay, he does not have to allege in this form of action that the actual payment was made at the request of the debtor: Exall v Partridge.
Kingham: The plaintiff does not have to allege the request, but she has to go back to the original contract in order to make the defendant liable. If the guarantee had been given voluntarily without any request, then clearly the defendant would have an answer. Here the guarantee was given at the request of the debtor, and therefore, although the action is brought for money paid by the plaintiff for the use of the defendant, the court must take into account the fact that the payment arose under a guarantee given at the request of the debtor, and that therefore there was an obligation under the Law Reform Act 1935, s 4(1)(c), which prevents bankruptcy proceedings being commenced against the debtor. This judgment was obtained against the debtor in respect of an obligation entered into in 1933. The creditor's rights depend upon that implied obligation. If a stranger had paid the bank, he would have had no right of action, even on a claim for money paid for the use of the debtor. The important fact is the consent to or request for the payment, and that is the foundation of the debt or obligation: Halsbury's Laws of England (Hailsham Edn), Vol 16, p 101, para 111.
Raeburn in reply.