CH. VII. s. 6. with Convicts. May be sued, or made bankrupt. Revesting of stolen goods. And there can be no doubt, that a party may be sued on a contract made by him whilst he stood convicted, although his own incapacity has not been removed (h), and he may be made a bankrupt, although no administrator has been appointed (i). Where a seller had been induced to part with goods under a fraudulent contract, such contract being voidable, the property in the goods, before the Sale of Goods Act, 1893, upon conviction of the fraudulent purchaser, revested in the original seller, even as against an innocent purchaser in market overt (k); but sect. 24 of the Sale of Goods Act, 1893 (post, Ch. XIII.) has altered the law by confining the revesting to cases of larceny. Contracts without notice of an act of bankruptcy. SECT. 7.-Contracts with Bankrupts and their Trustees. (a) Effect of Bankruptcy on existing Contracts. The Bankruptcy Act, 1883, 46 & 47 Vict. c. 52, by sect. 49, valid, if made enacts that, subject to the provisions of the Act as to the avoidance of certain settlements and preferences (1), nothing in the Act shall invalidate any contract by or with the bankrupt for valuable consideration, provided that (1) the contract takes place before the date of the receiving order (m); and (2) the person (other than the debtor) with whom the contract was made or entered into, had not at the time of the contract notice of any available act of bankruptcy (n) committed by the bankrupt before that time. What amounts to notice thereof. Notice that a creditor's petition in bankruptcy has been filed against a debtor, is notice of the antecedent act of bankruptcy by the debtor on which such petition must be founded (o); but notice of an intention to commit an act of bankruptcy, is not notice of an act of bankruptcy within the meaning of this section (p). And the act of bankruptcy, of which notice is required thereunder, in order to invalidate a contract made with a bankrupt must be, first, an act of bankruptcy which was available against the bankrupt for adjudication at the time the contract was made (q); (h) See Griffith v. Middleton (1618), Cro. Jac. 425; Macdonald v. Ramsay (1747), Fost. Cr. L. 61. (i) Graves, Ex parte, Harris, In re (1881), 19 Ch. D. 1, C. A. (k) Bentley v. Vilmont (1887), 12 App. Cas. 471. See sects. 26, 47, 48. (m) Which receiving order, by sect. 9 46 & 47 Vict. c. 52, as amended by sect. 1 (q) Ex parte Hoare (1873), L. R. 16 Eq. 625; and see Re Kearley (1878), 7 Ch. D. 615; and Ex parte Mc Dermott (1888), 21 Q. B. D. 580, C. A. Contracts with and, secondly, where an adjudication has actually been made, the CH. VII. s. 7. act of bankruptcy of which notice is required is one which would have been available for making that adjudication; and it must, Bankrupts therefore, have been committed within three months before the presentation of the petition on which such receiving order was founded (r). and their Trustees. to trustee. The benefit of contracts entered into with the debtor pass to Benefit passes his trustee, being part of his property as defined by sects. 44, 50, and 168 of the Bankruptcy Act, 1883, unless such benefit has been previously assigned (s), and if they are executory contracts, the trustee may complete the contract, and receive the benefit for the estate (t); and the trustee can, by sect. 56, give a receipt; and by sect. 57, by the permission of the committee of inspection, sue on the contract, or the trustee may assign the right of action to such of the creditors of the bankrupt as are willing to bear the expense of suing (u); or compromise the action, or any claim or liability. bankrupts. Bankruptcy in itself, save in so far as by law merchant it gives Clerks of a right to unpaid vendor of stoppage in transitu (x), does not determine a contract, except for any person who is apprenticed, or on articles of clerkship to the bankrupt, when either bankrupt or the clerk may by notice discharge the contract and prove (y). By sect. 55 of the Bankruptcy Act, 1883, 46 & 47 Vict. c. 52, Disclaimer. as amended by sect. 13 of the Bankruptcy Act, 1890, 53 & 54 Vict. c. 71, the trustee in bankruptcy may within twelve months-a period which may be extended by the Court of Bankruptcy-of the first appointment of a trustee, disclaim an unprofitable contract, and such disclaimer operates to determine the rights and liabilities of the bankrupt and also discharges the trustee from personal liability. A lease may not be disclaimed without leave of the Court; and by sub-sect. (5), which was new in 1883— The Court may, on application by any person who is, as against the trustee, Rescinding entitled to the benefit or subject to the burden of a contract made with the Order. bankrupt, make an order rescinding the contract on such terms as to payment by or to either party of damages for the non-performance of the contract, or otherwise, as to the Court may seem equitable, and any damages payable under the order to any such person may be proved by him as a debt under the bankruptcy. (r) Ex parte Gilbey (1878), 8 Ch. D. 248, C. A.; Bankruptcy Act, 1883, s. 6 (1), c. (8) See, e.g., Ex parte Nichols (1883), 22 Ch. D. 782, C. A.; and Ex parte Rawlings (1888), 22 Q. B. D. 193, Č. A. (t) Ex parte Stapleton (1879), 10 Ch. D. 586, C. A.; Ex parte Chalmers (1873), L. R., 8 Ch. 289; Morgan v. Bain (1874), CH. VII. s. 7. Contracts with and their Trustees. Burden must be proved in bankruptcy. "Liability' on contract. As to the burden of the contract, a person who has entered into a contract with one who subsequently becomes bankrupt, cannot Bankrupts generally sue either the bankrupt or the trustee, nor can he present a petition unless he comes within the definition in sect. 6 of a creditor for a liquidated sum of 50l., due at a certain date; but under sect. 37, sub-sects. 8 and 3, an obligation under a contract is a "liability" (2) provable in bankruptcy unless under sub-sect. 6 the Court shall make an order that such liability is incapable of being fairly estimated, and all such debts and liabilities, except such wages or salary as are entitled to preferential payment in full under the Preferential Payments in Bankruptcy Act, 1888, 51 & 52 Vict. c. 62, are payable pari passu out of the estate. The Bankruptcy Act, 1883, by sect. 30, after excepting debts to the Crown, provides that an order of discharge shall release the bankrupt from all other debts provable in the bankruptcy, and in any proceedings against him the bankrupt may plead that the cause of action occurred before his discharge. A bargain between debtor and creditor that the creditor should join in a scheme of composition releasing the debtor from all debts, including his own, but with a secret condition that the creditor should be paid in full, is a fraudulent preference, so that the release is void, and the condition bad, to the effect that the creditor loses the right to his original debt, and the composition under the scheme (a). But it is provided by sub-sect. 28 (6) that the Court may require the bankrupt to consent to judgment being entered for any unsatisfied balance of debts provable in bankruptcy; but this condition of the bankrupt assenting to judgment for unsatisfied balance being an express statutory power, cannot be imported into a scheme of arrangement with creditors (b). The Deeds of Arrangement Act, 1887, 50 & 51 Vict. c. 57, requires that assignments of property to creditors or deeds of inspectorship should be registered or in default be void; and further, by sect. 17, that no such registered deed should be valid if contrary to Bankruptcy Act, or void or voidable on an act of bankruptcy (c). (b) Contracts during Bankruptcy. A bankrupt is clearly responsible upon any contract which he makes after his bankruptcy. (2) See Hardy v. Fothergill (1888), 13 App. Cas. 351; Barnett v. King, [1891] 1 Ch. 4. (a) Ex parte Phillips (1888), 36 W. R. 569, C. A. (b) Ex parte Bischoffsheim (1887), 20 Q. B. D. 258, C. A. (c) Ex parte Milne (1889), 22 Q. B. D. 685 Contracts with But the effect of "The Bankruptcy Act, 1883," ss. 44, 168, is CH. VII. s. 7. to vest in the trustee, inter alia, all such property as may belong to or be vested in the bankrupt at the commencement of the bankruptcy, or which may be acquired by or devolve on him at the time before he obtains his discharge (d). Bankrupts and their Trustees. Right of ac tion thereon vests in trustees. And, under the term "property" in the above section, are comprised, not merely personal chattels and debts, properly so called, but all rights of action for breaches of contract relative "Property." to the personal estate of the bankrupt, whereby that estate is prevented from coming to the hands of the trustee, or is diminished in value; as well as the right of action in respect of every beneficial contract, executory or part executed, which the trustee could perform, and thereby add to the personal estate (e). The trustee, therefore, is entitled to the benefit of any contract which the bankrupt may make, or may have made, at any time before his discharge (f). Thus he may sue for wrongful dis- bankruptcy. missal of the bankrupt from a contract of service made before Beckham v. bankruptcy (g). But the right of the trustee in regard to contracts made, and property acquired by the bankrupt after his bankruptcy, and before the order of discharge takes effect, is not absolute. It is a power or right to be exercised by the trustee at his option; and until he elects to exercise it, the bankrupt is quodam modo the owner of property acquired, and is legally entitled to sue upon contracts made by him after his bankruptcy, even although he has not obtained his order of discharge. Trustee has benefit of con. tract during Drake. But not absolutely. may sue, un Cohen v. Accordingly it is clearly settled, that an undischarged bankrupt Bankrupt may sue on a contract made by him after his bankruptcy, unless less trustee the trustee interposes (h), nor will he be ordered to give security intervene. for costs (i); and it has been laid down by the Court of Appeal Mitchell. that until the trustee intervenes all transactions by a bankrupt after his bankruptcy with any person dealing with him bonâ fide and for value in respect of his after-acquired "property," whether (d) Ebbs v. Boulnois (1875), L. R., 10 Ch. 479; Ex parte Wainwright (1881), 19 Ch. D. 140, C. A.; In re Smith (1883), 24 Ch. D. 673; 22 Ch. D. 586. The above statute also, by sect. 24, excepts the bankrupt's tools of trade, and the necessary wearing apparel and bedding of himself, his wife and children, not exceeding in the whole the value of twenty pounds, thereby re-enacting sect. 15 of the repealed Bankruptcy Act, 1869, 32 & 33 Vict. c. 71; and a scheme of arrangement must be accepted by creditors and approved by the Court under sect. 18; and this is binding on all who could prove; Flint v. Barnard (1888), 22 Q. B. D. 90, Contracts with CH. VII. s. 7. with or without knowledge of the bankruptcy, are valid against the trustee (k); but it has been strongly suggested that the word Bankrupts. "property" in this proposition did not include and was not intended to include real estate (1), though it must be taken to apply to leaseholds (m). Bill or Note. Action by Thus an undischarged bankrupt may sue on a bill of exchange undischarged which was indorsed to him after he became bankrupt, unless bankrupt. before action the trustee has interfered (n). So, the property in a promissory note, made payable to an undischarged bankrupt, vests in him, subject to the right of the trustee to interfere; and his indorsement thereof, before the trustee has interfered, will pass the property therein to the indorsee (o). And so, an undischarged bankrupt may maintain an action for the price of goods sold by him (p); or for work and labour done by him after his bankruptcy (q); or for work, labour, and materials, where the latter have been supplied by him as incidental to the work done (r); or for wrongful dismissal from a contract of service as traveller, made after bankruptcy (s). Labour. Wrongful dismissal. Contracts for the personal labour of the bankrupt. Workman's wages. The bankrupt has a right to enough of his personal earnings as are reasonably sufficient for the support of his family, but this would not include the large earnings of an architect or an actor (t), for although the Court, under sect. 53 of the Bankruptcy Act, 1883 (u), can deal with the bankrupt's "salary or income," this will not apply to or enable the Court to impound his future earnings arising from his personal skill (for the Court could not force him to go on working) (x); unless, indeed, the personal earnings are not daily earnings, but take the shape of a yearly or other periodical salary, as was suggested by Vaughan Williams, J., in the case of a dentist receiving a fixed share of partnership profits under a partnership deed (y). Nor are a workman's weekly wages "salary or income " within the enactment (z). (k) Cohen v. Mitchell (1890), 25 Q. B. D. 262, C. A. (1) New Land Development Association and Gray, In re, [1892] 2 Ch. 138, per Chitty, J. (m) Clayton and Barclay's Contract, In re, [1895] 2 Ch. 212, per Chitty, J. (n) Herbert v. Sayer (1844), 5 Q. B. 965. (0) Drayton v. Dale (1823), 2 B. & C. 293. (p) Hayllar v. Sherwood (1833), 2 N. & M. 401; Cumming v. Roebuck (1816), Holt, N. P. C. 172. (q) Jameson v. Brick and Stone Com- (r) Silk v. Osborne (1794), 1 Esp. 140. 137, C. A., affirming Phillimore, J., [1902] 2 K. B. 397. (t) Emden v. Carte (1881), 17 Ch. D. 768, C. A., and Wadling v. Oliphant (1875), 1 Q. B. D. 145, distinguishing Chippendale v. Tomlinson (1785), 4 Dougl. 318; and Williams v. Chambers (1847), 10 Q. B. 337. (u) Corresponding to sect. 88 of the Bankruptcy Act, 1869. (x) Ex parte Benwell (1884), 14 Q. B. D. 301, C. A. See also Shine, In re, [1892] 1 Q. B. 522 (actor's salary). (y) Rogers, In re, Collins, Ex parte, [1894] 1 Q. B. 425. (z) Jones, In re, Lloyd, Ex parte, [1891] 2 Q. B. 231. |