Re Daintrey. ex parte Mant
| Jurisdiction | England & Wales |
| Date | 1900 |
| Court | Court of Appeal |
Bankruptcy - Debtor and Creditor - Mutual Debts or Dealings - Set-off - Act of Bankruptcy - Receiving Order - Account of Mutual Dealings - Date for Taking Account -
D., a solicitor, being at the time indebted to M., another solicitor, in a sum of 86l., on December 24, 1892, committed an act of bankruptcy of which M. had no notice. On December 31, 1892, D. sold his business to M. under an agreement which fixed as the price a portion of the profits expected to be earned for three years from the business sold. Thereupon M. took possession of and carried on the business. On January 17, 1893, a receiving order was made against D., but no profits had then been earned from the business. At the end of the three years a sum of 300l. was found to be due from M. to D. under the agreement as the price of the business, and this sum M. paid to D.'s trustee in bankruptcy after deducting the 86l. due from D. to M. The trustee however objected that M. could not set off the 86l. against the 300l.; that he must pay the 300l. in full and be satisfied with a dividend on the debt of 86l.
The county court judge allowed the objection, and an appeal by M. to the Divisional Court (Wright and Bigham JJ.) was dismissed, the Court differing in opinion. On appeal by M., by leave, to the Court of Appeal:—
Held, that the dealings between M. and D. were “mutual dealings” within s. 38 of the Bankruptcy Act, 1883, and that M. was therefore entitled to set off the 86l. due to him from D. against the 300l. due from him to D.; also that the date of the receiving order, and not that of the act of bankruptcy, was the proper date at which to ascertain what those dealings were, so as to be capable of being made the subject of set-off under the section.
APPEAL to the Divisional Court from the county court of Sussex.
The facts and arguments are fully set out in the judgments in the Divisional Court.
Dickens, Q.C., and Hohler, for the appellant.
Herbert Reed, Q.C., and Mackintosh, for the respondent.
1899. Aug. 10. WRIGHT J. read the following judgment:– On January 17, 1893, a receiving order was made against Daintrey, who was a solicitor, the act of bankruptcy being a circular to creditors dated December 24, 1892. Adjudication did not take place until August, 1893. At the date of the receiving order Daintrey owed the appellant Mant (who carried on business as a solicitor under the name of Mant & Mant) 86l. for money paid by Mant at Daintrey's request before the act of bankruptcy. Mant, on the other hand, was at the same date under a possible liability to Daintrey by virtue of an agreement made on December 31, 1892, for the purchase of Daintrey's business by Mant, under which agreement Mant was to pay to Daintrey a portion of the profits expected to be earned in the business after the transfer of it to Mant. At the date of the agreement Mant had no notice or knowledge of any act of bankruptcy committed by Daintrey. No profits had been made in the business by Mant before the date of the receiving order, but since that date profits have been made both before and since adjudication, and the proportion of them payable to Daintrey is about 300l. Mant has never proved for his own claim of 86l., but, the trustee having applied to the Court for an order against Mant for payment of the 300l. as part of the bankrupt's estate, Mant claims to set off the 86l. pro tanto against the 300l.; and the question is whether there ought to be such a set-off of a debt due from the bankrupt before his bankruptcy against a debt to the bankrupt's estate which did not come into existence as a debt, demand, or liability until after the date of the receiving order, but was until after that date a mere possibility of indebtedness. In considering this question there are three things which it is specially important to observe. The first is that there is nothing to shew any connection between the cross-demands. They are in respect of entirely separate and independent transactions. The second is that Mant was not under any obligation to carry on the business which he had bought. He might not choose to do any business, or none might be offered to him, or there might not be any profit. The third is that the question arises, not in an action, but in a proceeding in the bankruptcy. The question of course, does not depend on the general law of set-off, which until 1879 depended on the statutes 2 Geo. 2, c. 22, s. 13, and 8 Geo. 2, c. 24, s. 4, and since the repeal of those Acts by the 42 & 43 Vict. c. 59, and 46 & 47 Vict. c. 49, depends upon the saving clauses of the repealing Acts. There cannot in the present case be a set-off by virtue merely of that law for two reasons. One is that it applies only to set-off in an action. The other is that the general law of set-off has always been held to be applicable only where the cross-demands are in the same right, or in cases within the special exception as to executors which was contained in the repealed Acts. In the present case, in the events which happened, the contract of December 31, 1892, became, by force of the Bankruptcy Act, transferred to and vested in the trustee retrospectively as from the date of the act of bankruptcy. At that date there was no existing liability on the part of Mant to pay anything, or to do or restore anything. There never was any right of action in the bankrupt on the contract, or against the trustee for the debt. The cross-demands, therefore, are not mutual — are not in the same right: see, e.g., per Lord Eldon in Ex parte BlagdenF1; Shipman v. ThompsonF2; Wood v. SmithF3; Groom v. MealeyF4; Beckwith v. Bullen.F5 There are cases, such as Hulme v. MugglestonF6, Bittleston v. TimmisF7, in which this difficulty has been overcome by the adoption in actions of the doctrines of bankruptcy law, but such cases depend on that law and not on the statutes of set-off. The present case, therefore, must be determined solely upon the proper construction of the Bankruptcy Act, 1883.
The 38th section of that Act provides as follow: “Where there have been mutual credits, mutual debts, or other mutual dealings between a debtor against whom a receiving order shall be made under this Act, and any other person proving or claiming to prove a debt under such receiving order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against any sum due from the other party, and the balance of the account, and no more, shall be claimed or paid on either side respectively; but a person shall not be entitled under this section to claim the benefit of any set-off against the property of a debtor in any case where he had at the time of giving credit to the debtor, notice of an act of bankruptcy committed by the debtor, and available against him.”
On this section it must first be observed that although by its terms the enactment seems to be confined to set-off as between the bankrupt and a person proving or claiming to prove in the bankruptcy, yet it is settled that the same right of set-off may be claimed in an action brought or in other proceedings taken in the bankruptcy by a trustee or liquidator: Peat v. JonesF8; Mersey Steel and Iron Co. v. Naylor.F9 There is no difference for this purpose between the language of the Act of 1869 and that of the Act of 1883. It is, therefore, no ground of objection to Mant's claim of set-off that he is asserting it, not by way of proof, but in answer to the trustee's application for an order for payment of the 300l.
Then the first question to be determined is, What is the date with reference to which the account is to be taken under the section and the set-off made? Until this question is answered it is impossible to say what claims on either side are to be taken into the account. Is the date to be the date of the commencement of the bankruptcy, as defined by s. 43, or the date of the receiving order, or the date of adjudication, or the date when the particular creditor comes in to prove, or the date when an action is brought or other proceeding taken by the trustee against him? It is obvious that the question whether and how far the set-off is to be allowed may have to be answered differently according as one or other of these dates is to be adopted. In the present case, if the date is the date of adjudication, Mant can utilize his own claim to defeat a part of the claim against him under the agreement; but it may be otherwise if the date is the date of the receiving order.
Under the earlier statutes, such as 4 & 5 Anne, c. 16, and 5 Geo. 2, c. 30, s. 28, it was settled in 1744 — Ex Parte GroomeF10—by Lord Hardwicke that the line was to be drawn at the date of the commission, which was then the commencement of the bankruptcy, although the assignees' title might, and usually, of course, did, relate back to an earlier time; and Dickson v. EvansF11, per Lord Kenyon C.J.F12, was to the same effect. The Bankruptcy Act of 1825 (6 Geo. 4, c. 16, s. 50) confined the set-off of mutual credits to such as had arisen before the commission: Collins v. JonesF13; and that enactment continued in force until 1849.
The Act of 1849 abolished fiats and substituted petitions followed by adjudications. There was no enactment like that in s. 11 of the Act of 1869, or in s. 43 of the Act of 1883, making the bankruptcy relate back to and commence at the act of bankruptcy on which the petition was founded, or any prior act of bankruptcy, the common law doctrines of relation of title being apparently thought sufficient. The set-off section (s. 171) contained no indication of the date with reference to which the account was to be taken.
Upon that Act the cases of Naoroji v. Chartered Bank of...
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