Munro v Rothfield
| Jurisdiction | England & Wales |
| Judgment Date | 28 June 1920 |
| Date | 28 June 1920 |
| Docket Number | No. 13. |
| Court | House of Lords |
Viscount Haldane, Viscount Finlay, Viscount Cave, Ld. Dunedin, Lord Shaw of Dunfermline.
BankruptcyIllegal preference at common lawAgreement between debtor and certain of his creditors for their preferential treatmentRight of creditor party to agreement to challenge itContractPactum illicitum.
An insolvent debtor entered into an agreement with certain of his creditors, whereby he bound himself to set aside out of his income a sum of 300 per annum to be applied in payment of the debts due to these creditors. The creditors bound themselves not to enforce their claims so long as the sum of 300 per annum was duly paid. The debtor and the creditors who were parties to the agreement were all aware of the debtor's insolvency. The debtor implemented his obligation to set aside the sum of 300 per annum.
Held (aff. judgment of the First Division) that the agreement, although challengeable by creditors who were not parties to it as an illegal preference at common law, was not void as being a pactum illicitum, and was binding on the creditors who were parties to it inter se.
(In the Court of Session, 3rd December 1919infra, Court of Session, at p. 118.)
The respondent, Henry Rothfield, appealed to the House of Lords.
The appeal was heard on 28th June 1920.
Viscount Haldane.The difficulty which confronts the appellant in this case is that he proves either too much or too little. Too much, if the principle on which he is founding his argument is the wide and sweeping one lying at the very foundations of the jurisprudence of Scotland, as he asserts, because that principle forces this House as a Court of Justice to take notice, not only of the illegality of what has been called the general agreement, but also of the illegality of his special agreement and the decree in absentia he obtained upon it and of the charge he obtained following on that decree in absentia; these all fall to the ground if that general principle is the one which applies. But I do not think that we are concerned with the general principle, for as soon as you look at the facts in the case the point turns out to be of a nature much narrower.
A debtor got into financial difficulties in the year 1918. A little earlier, on the 9th of October 1917, he had given a bill in favour of the appellant for 250. On the 20th of February of the next year, 1918, the appellant had presented a petition for his sequestration. Then on the 28th of March 1918 he was already considering an arrangement with his most important creditors and, apparently, was approached by the appellant, and he entered into the special agreement with the appellant which we have had read, and which refers to what had apparently been verbal negotiations. The substance of this special agreement, which, as I have said, was dated the 28th of March 1918, was this: that, in the event of the proposed general arrangement with the important creditors, including Mr Rothfield the appellant, being concluded, he, the debtor, undertook to arrange that Mr Rothfield's claim be taken over by instalments at three, four, and six months from the last date of signature in said agreement, and bound himself accordingly. The effect of that was to give Mr Rothfield, not only the benefit of the prospective general agreement, but an advantage over the other creditors under that agreement.
Now the next material thing that happened was that, on the 5th and subsequent days of May in the same year, 1918, the general agreement of which I have spoken was come to. It was entered into between the debtor himself and a number of his important creditors, including Mr Rothfield and a Mr Munro, an accountant, who was a sort of trustee for the creditors; and the effect of it was this, that the debtor undertook to make over, not only his general assets, but his income specially, and to pay out of his income a sum of not less than 300 a year. That amount was to be paid at intervals, and the trustee, Munro, was to divide it proportionately among the creditors specified until their debts, which were set out in a schedule, were paid. That was the general agreement.
Now the next thing that happened was that, on the 14th of September in the same year, Mr Rothfield took proceedings to enforce his special agreement, and under that he got a decree in absentia for the sum of 70 odd, suing upon this special agreement, and on the 18th of October the decree was complete.
The next thing that happened was that the present action out of which this appeal arises was commenced on the 26th of December. That...
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