Ex parte Buxton; In re M ü ller
(1880) 15 Ch.D. 289(Judgment by: James LJ, Brett LJ, Cotton LJ)
Ex parte Buxton
In re M
ü
ller
Judges:
James LJ
Brett LJ
Cotton LJ
Subject References:
LEASE OF BANKRUPT
Equitable Mortgagee
Assignment by Trustee
Right of Trustee to Indemnity
Disclaimer
Legislative References:
Bankruptcy Act, 1869 (32 & 33 Vict. c. 71) - s 23
Case References:
Wilkins v. Fry considered - 1 Mer. 244
Judgment date: 22 July 1880
Judgment by:
James LJ
Brett LJ
Cotton LJ
When the trustee of a bankrupt desires to disclaim a lease which the bankrupt has deposited by way of equitable mortgage, he will not be allowed to do so to the prejudice of the mortgagee, but if he assigns the lease to the mortgagee, the latter must covenant to indemnify him against liability under the lease.
Wilkins v. Fry 1 Mer. 244 considered.
This was an appeal from an order made by Mr. Registrar Hazlitt, acting as Chief Judge in Bankruptcy, giving leave to the trustee in the liquidation of John M ü ller to disclaim within fourteen days all his interest in the property comprised in a lease, dated the 5th of July, 1879, to the debtor of the business premises which had been occupied by him.
The debtor had, on the 1st of February, 1880, deposited the lease with S. C. Buxton to secure the repayment of moneys advanced by him to the debtor. Notice of the application for leave to disclaim was served on the lessors and on Buxton. Buxton opposed the making of the order. He desired to have an assignment of the lease from the trustee, and the trustee was willing to execute an assignment to him, but required that Buxton should indemnify him against liability on the covenants in the lease, and should pay a quarter's rent which was due. Buxton insisted that he was not bound to indemnify the trustee. The lessors were willing to accept Buxton as a tenant. Pending the hearing of the appeal, the Court of Appeal had granted an injunction to restrain the trustee from executing the disclaimer. By his notice of appeal the Appellant asked that the trustee might be authorized and directed to assign all the interest acquired by him as trustee in the property comprised in the lease to Buxton.
Winslow, Q.C., and Leeke, for the Appellant:-
The effect of the order is to destroy the Appellant's title. The trustee is trustee for the secured creditors as well as for the unsecured; he is bound not to exercise his power in such a way as to destroy the security of an equitable mortgagee: Lingard v. Bromley. [F1]
[E. Cooper Willis, for the trustee:-
The trustee is willing to assign the lease to the Appellant on his indemnifying him in the usual way against liability on the covenants in the lease. We made this offer before the Registrar.]
A trustee in bankruptcy when he assigns a lease of the bankrupt is not entitled to any indemnity from the assignee: Wilkins v. Fry; [F2] Davidson's Conveyancing. [F3] There is the further question who is to pay a quarter's rent which is now due. It is an important question what is the position of an equitable mortgagee of a lease of a bankrupt when the trustee in the bankruptcy wishes to disclaim the lease.
[JAMES, L.J.:- Of course the trustee would not be allowed by his disclaimer to affect the rights of an equitable mortgagee. The question is only on what terms the trustee is to assign the lease.]
C. Lyttleton Chubb, for the lessors.
JAMES, L.J. :-
If the equitable mortgagee intercepts the trustee's right to disclaim, a right which is given to him by statute subject to the equitable rights of other persons, he must, like any other person who claims the property, take it on the usual terms, i.e., he must covenant to indemnify the trustee against liability under the lease. The trustee will not get the benefit of a disclaimer; he will assign as a continuing lessee up to the time of the assignment, and as he will thus retain a liability which he would otherwise have got rid of, the assignee must indemnify the trustee against the consequences of his retaining the lease up to the date of the assignment. The Appellant must pay the quarter's rent which is due. The assignment will be at his expense, and he must pay the costs of the appeal.
BRETT and COTTON, L.JJ. , concurred.