Caldwell v Hamilton
| Jurisdiction | England & Wales |
| Judgment Date | 25 July 1919 |
| Date | 25 July 1919 |
| Docket Number | No. 11. |
| Court | House of Lords |
Viscount Finlay, Viscount Cave, Ld. Dunedin, Lord Shaw of Dunfermline, Ld. Wrenbury.
BankruptcySequestrationEstate falling under sequestrationAcquirendaSalary being earned under contract of serviceBeneficium competentiPayment of surplus income to trustee in sequestrationPresent order affecting future salaryBankruptcy (Scotland) Act, 1913 (3 and 4 Geo. V. cap. 20), sec. 98 (1).
A bankrupt at the date of his sequestration was earning and thereafter continued to earn, under a contract of service terminable on notice, a fixed salary of 500.
Held (1) that the instalments of salary as they accrued from time to time (in so far as they exceeded what was required for the reasonable maintenance of the bankrupt) vested in the trustee, under section 98 (1) of the Bankruptcy Act, 1913, as acquirenda of the bankrupt; (2) that it was competent for the Court to pronounce in prsenti an order for payment to the trustee of instalments of salary receivable in futuro, under reservation to the trustee and the bankrupt or any other persons interested of the right to apply to the Court in the event of a change of circumstances.
Circumstances in which the House of Lords affirmed a judgment of the Second Division ordering the bankrupt to pay yearly to the trustee 150, his total annual income being 670.
Barron v. MitchellSC, (1881) 8 R. 933, commented on, and opinion of Lord Fraser (Ordinary) disapproved.
Riley v. Ellis, 1910 S. C. 934, commented on, per Lord Dunedin and Lord Shaw.
(In the Court of Session, 1st June 19181918 S. C. 677.)
John Hamilton, the respondent in the petition, appealed to the House of Lords.
The case was heard on 3rd, 4th, and 7th July 1919.
Counsel for the appellant did not contend that the bankrupt's salary could not be made available for his creditors after it had accrued. The argument was confined to the contention that it was incompetent for the Court in prsenti to make an order affecting instalments of salary which were not yet due, and to which the bankrupt's right was as yet contingent and in futuro. The undernoted authorities were referred to in the course of the argument.1
At delivering judgment on 25th July 1919,
Viscount Finlay.In this case a petition was presented on behalf of the trustee in the bankruptcy of the appellant, asking that it should be found that the bankrupt was entitled to a salary at the rate of 500 per annum as an employee of William Beardmore & Co., that the amount was in excess of a suitable aliment to him, and that the amount of such excess should be fixed, and that he should be ordered to pay over to the trustee the amount of such excess when received by him.
The petition came before Lord Sands in the first instance. It was opposed on two grounds, namely (1) that the personal earnings of the appellant after the date of the sequestration do not pass under the sequestration to the trustee; and (2) that it was not competent to make an order against the bankrupt with reference to any instalments of the salary before they accrued due. Lord Sands refused the prayer of the petition. His decision was reversed by the Second Division of the Inner House, who pronounced the interlocutor now under appeal. By that interlocutor the matter was remitted to the Lord Ordinary to grant the prayer of the petition to the effect of finding that the bankrupt is in receipt of a salary of 500 per annum as an employee of William Beardmore & Co. and of certain other income, and to find that the amount is in excess of a suitable aliment to the bankrupt under his existing circumstances by 150 per annum, and to order and decern the bankrupt to pay over 150 per annum out of the said salary, as and when received by him, to the trustee until further order and decerniture, with a reservation of the right to apply to the Court in the event of a change of circumstances.
An appeal from this interlocutor has been brought to your Lordships' House. The case on appeal was based entirely on the first of the two grounds above stated, namely, that the personal earnings of the appellant in the sequestration do not pass to the trustee, but the argument at the bar of your Lordships' House was put entirely on the second of these two grounds, namely, that it was not competent to make an order against the bankrupt with reference to any instalments of the salary which had not accrued due. It was admitted by the counsel for the appellant that the ground taken in the case on appeal is untenable, and that the personal
earnings of the bankrupt would pass to the trustee under section 98 (1) when they accrued, subject to the beneficium competenti. The only question argued on behalf of the appellant was whether it is competent to make an order such as the present in advance, so as to take effect on each instalment as it accrues due. This point we have been informed was fully argued before the Inner House, and this is borne out by the report of the argument to which our attention was called. It follows that this objection was overruled by the Inner House when they pronounced the interlocutor now under appeal, although in the judgments themselves there is little or nothing in terms bearing upon this point.
In my opinion the appeal fails. If the right to the instalments as they fall due vests in the trustee under the Act, subject to the beneficium competenti, it follows that he must be able to apply to prevent the diversion of the instalments to any other purpose. If, when such an instalment was about to fall due, there was any ground to suppose that there was danger of its diversion, the trustee could come to the Court to have its payment to him secured. These instalments fall under the head of acquirenda, and the title of the trustee rests upon section 98 (1) of the Bankruptcy (Scotland) Act, 1913. The property in each instalment would vest in the trustee only if it fell due, and it would fall due only if the bankrupt continued to work for Beardmore & Co.
The argument for the appellant was that nothing could be done by the Court with reference to such acquirenda until the trustee's title had accrued when each instalment of salary had been earned and was payable, and that the trustee should then follow the procedure laid down in section 98 (1) and get an order accordingly. This argument appears to me to overlook the fact that it must be open to the Court to take proceedings to prevent the right of the trustee to each instalment as it falls due being defeated by the bankrupt's receiving and spending the money himself, and that, if there be no such power, there might be a most inconvenient and unseemly scramble between the trustee and the bankrupt as each instalment fell due. The trustee surely might take steps as any one instalment was about to fall due for the purpose of preventing the bankrupt from defeating his title by receiving and spending it, and, if he can do it with regard to each particular instalment, there is no principle of law to prevent him from obtaining a general order of this kind for the protection of his title to receive each instalment as it falls due. The multiplication of orders and accumulation of costs would be thus prevented. The Court has complete control of any such order, and can withdraw it or modify it at any moment if justice so requires.
I have had the opportunity of reading the judgment which has been prepared by Lord Dunedin, and I agree with what he says as to the object with which there is inserted in section 98 (1) the provision for application to the Lord Ordinary or the Sheriff with regard to acquirenda when they have become acquisita. It is supplementary to the earlier part of the clause, which enacts in effect that the acquirendavest in the trustee as soon as they become acquisita, and is intended to deal with other claims that may have come into existence with regard to the acquirenda. I also agree with the addition to the order which is suggested by Lord Dunedin, viz., that reservation should be made of the right to apply in favour of any other persons interested. The respondent should have the costs of this appeal.
Viscount Cave.The question for decision in this case is whether the Lord Ordinary on the Bills has power under the Bankruptcy (Scotland) Act, 1913, to order an undischarged bankrupt to pay a part of his future personal earnings to the trustee in his bankruptcy for the benefit of his creditors.
The short facts are as follows. An order of sequestration was made against the appellant, John Hamilton, on 3rd November 1913. There have been paid to the creditors out of the sequestrated estate two dividends amounting together to 5s. 91/4d. in the on their debts. The appellant was at the date of the sequestration, and still is, in the employment of Messrs William Beardmore & Co. at a fixed salary of 500 per annum, such employment being apparently...
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