DISCLAIMER OF CONTRACTS IN BANKRUPTCY
| Published date | 01 January 1952 |
| DOI | http://doi.org/10.1111/j.1468-2230.1952.tb02107.x |
| Date | 01 January 1952 |
| Author | L. W. Melville |
DISCLA4TMER
OF
CONTIMCTS
IN
J3ANKRUPTCY
THERE are two provisions in the Bankruptcy Act,
1014,
s.
54,
by
which outstanding contracts may be brought to an end
or
modified
:
one is the right
of
the trustee in bankruptcy to disclaim “unpro-
fitable
’)
contracts, and the other which may be regarded as
complementary to disclaimer, is the right of a party who has dealt
with a bankrupt to apply to the court to have a contract rescinded.
It
is only proposed to discuss disclaimer by the trustee in bank-
ruptcy in this article, and further to limit the inquiry to three
problems
:
first, the conflict between a claim
for
specific per-
formance by the third party where the trustee wishes to disclaim;
secondly, the question which arises where disclaimer is opposed
on the ground that it will destroy a third party’s security; and
thirdly the effect
of
the trustee’s failing to disclaim within the
time limited by a notice served on him by the third party under
section
54
(4).
The first two of these problems are each different aspects
of
the same generic conflict between the principle that
LL
trustee shall
respect existing rights and the policy that, in the administration of
an insolvent estate, there should be
a.
power to throw
off
onerous
liabilities
so
as
to
prevent one creditor being paid in full where
others have to be content with
a.
dividend. Indeed, we can take
this further and say that these questions resolve themselves into
the distinction between what are often referred to as rights
in
renz
and rights
in
personuin,
using those terms in the anglicised version
as
referring on the one hand to rights attaching to specific property,
and, on the other hand to rights in the nature
of
personal
obligations.
1.
DISCLAIMER
VERSUS
SPECIFIC
PERFORMANCE
Both disclaimcr and specific performance are
of
limited application
when applied to contracts,
for
the power
of
disclaiming contracts
applies only to those which are “unprofitablc,” whilst an order
for
specific performance will not be granted in a number
of
instances, such as where the contract relates to a promise
of
a
personal nature,
or
is such as cannot properly be supervised by the
court in its performance.
It
seems, though there is littlc judicial
guidance on thc point, that the two classes
of
contract under each
of
the hcads of disclaimer and specific performance are, as
o.
rule,
mutually exclusive.
It
is
probably true to say that
“
unprofitable
))
mcans, not simply a contract w+liich is a bad bargain, but one
the performance of which cannot satisfactorily be carried out by
25
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