Re Schebsman
| Jurisdiction | England & Wales |
| Year | 1943 |
| Date | 1943 |
| Court | Chancery Division |
Contract for benefit of third party - Performance by payment to third party against wish of obligee - Bankruptcy - Settlement - Avoidance - Settlement made within two years before bankruptcy - Agreement for payments to debtor's wife and daughter -
The employment of the debtor by a Swiss company and its English subsidiary company ended on March 31, 1940, and an agreement which he made on September 20, 1940, with the two companies provided for certain payments being made by the English company to him over a period of years, so long during that period as he was living and, after his death within a certain period (which happened) to his widow, and in an event which, at the date of this motion, might or might not happen, to his daughter. The agreement provided in cl. 2: “In consideration of the agreement which has already been made between the parties hereto the English company also agree to pay by way of compensation for the loss of [the debtor's] employment a sum of 5500l. to be paid to the persons at the dates in the amounts and subject to the conditions more particularly specified in the schedule hereto.” The schedule began with a list of six sums, four of 1000l. each, and two of 750l. each. The first of them was to be paid for the year ending March 31, 1941, and the others for the years ending on the five succeeding anniversaries of that date. They amounted to the total of 5500l., and the last payment was to be made for the year ending March 31, 1946. By cl. 4, the debtor agreed not to engage in any competing business for ten years from March 31, 1940. The schedule provided that, if he died on or before March 31, 1941, the company would pay his widow 500l. for each of the four years ending March 31, 1941, 1942, 1943 and 1944, and 375l. for each of those ending on March 31, 1945, 1946, 1947 and 1948; that, if he died during the conventional years 1941–1942, 1942–1943, 1943–1944, each ending on March 5, the payments should extend over the period ending March 5, 1948; that, if he died during the conventional years 1944–1945, 1945–1946, the payments were to cover the period ending March 5, 1950; that, if the widow died before March 5, 1950, the schedule should be read thereafter as if the name of the daughter appeared instead of that of the widow; and that the payments should cease on the death of the survivor of the debtor, the widow and the daughter. The debtor was adjudicated bankrupt on March 5, 1942, and died on May 12, 1942.
Held, (1.) that under the agreement the debtor was neither a trustee nor an agent for his wife and daughter. (2.) That, as a matter of law, payment to the wife and daughter, who were strangers to the contract, was due performance of the agreement unless, on the true construction of the agreement, there ought to be implied a term entitling the debtor or his sequels in title to intercept the sums agreed to be paid to them. (3.) That, in determining whether, on the construction of the agreement, any such term should be implied, the legal consequences of non-performance were irrelevant. (4.) That, on the true construction of the agreement, no such term should be implied. Dictum of Lord Esher M.R., in Cleaver v. Mutual Reserve Fund Life Association [
MOTION.
The facts sufficiently appear in the headnote.
By this motion the official receiver, as the debtor's trustee in bankruptcy, asked for a declaration that all sums payable under the agreement to the widow and, possibly, to the daughter, after the receiving order formed part of the estate of the debtor on the grounds that, although the sums were, by the agreement, to be paid to the widow or the daughter, the debtor always had the right to intercept them, which right was at the date of the motion in the trustee, and, secondly, that, if the debtor had not that right, the provision for his widow and daughter was a voluntary settlement made by him which was avoided under s. 42, sub-s. 1, of the Bankruptcy Act, 1914, because of his bankruptcy within two years of making it.
Pennycuick for the official receiver. After argument has been put forward on behalf of the widow and daughter, it will be necessary to refer, on behalf of the trustee, to the agreement which, the trustee alleges, existed between the debtor and the company, and, also, to certain authorities.
Denning K.C. and G. R. F. Morris for the widow and daughter. The widow and daughter are entitled to the payment of all sums which have fallen due under the agreement since the debtor's death. It must be conceded that the widow as such, cannot sue under the contract because she is not a party to it, but the debtor's legal personal representative can sue, as representing a party to the contract, and, on suing successfully, would be entitled to receive the full amount of the money due under the agreement, and not merely nominal damages: Lloyd's v. HarperF1; Les Affréteurs Réunis Société Anonyme v. Leopold Walford (London), Ld.F2; West v. HoughtonF3, where only nominal damages were awarded, is no longer of authority. When received, the full amount is to be held for the widow and not for the creditors: In re FlavellF4. That case is the root of authority on this point, and was followed in Ashby v. CostinF5, In re DaviesF6 and Drimmie v. DaviesF7, and applied in Parker v. JudkinF8. Against the contention that the widow is so entitled is a dictum of Lord Esher M.R. in Cleaver v. Mutual Reserve Fund Life AssociationF9, but that dictum was not followed in In re Burgess' PolicyF10, or in In re Engelbach's EstateF11. It was followed in In re Sinclair's Life PolicyF12, which was distinguished in In re GordonF13 and in In re WebbF14. There was, moreover, a dictum to the opposite effect by Fry L.J. in Cleaver's caseF15. The argument of Professor Corbin, in an article entitled “Contracts for the Benefit of Third Persons” (46 Law Quarterly Review, p. 12), supports the present contention, though the proposition contended for is broader than that put forward by him. His article is directed to throwing doubt on the doctrine that two parties cannot by contract confer rights on a third person who is not a party to the contract. On the bankruptcy point, there was no settlement by the debtor of “property” within s. 42, sub-s. 1, of the Bankruptcy Act, 1914. If a person dies insolvent and the estate is then administered in bankruptcy, s. 42 does not apply. True, the estate here has not been administered in bankruptcy, but the widow is the administratrix and could at any moment apply for an order for administration in bankruptcy: In re GouldF16...
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