Contracting out of the Fundamental Principles I - The Property Principle Flashcards
Higinbotham v Holme (1812) 19 Ves 88; 34 ER 451
Case: Under marriage settlement husband settled property on trustee to hold for himself for life, or , if he should embark on any trade or business and in his wife’s lifetime become bankrupt, then from his death or bankruptcy on trustee to provide an annuity for his wife; husband went bankrupt
Decision: The husband may not settle own property on trust for himself in order to remove title to the property on bankruptcy. It was not relevant that it was not within the reasonable contemplation of father-in-law that husband would enter business (as had been a minister).
Rule: A debtor cannot provide that their own property shall not be available for their creditors.
Dommett v Bedford (1796) 3 Ves 149; 30 ER 941
Case: Testator left property subject to payment of an annuity on terms that annuitant should not alienate the annuity and if it should be so alienated the annuity should immediately thereupon cease and determine; annuitant went bankrupt
Decision: The annuity could not cease and determine on bankruptcy as it was an annuity for life, and therefore property of bankrupt. This would be avoiding property being assigned.
Rule: A transferor cannot provide that the property shall not be available to the debtor’s creditors; see also Brandon v Robinson
Brandon v Robinson (1811) Ves 429; 34 ER 379
Case: Testator left property on trust for his son, directing that the income from property be paid to the son but the income “should not be grantable, transferable or otherwise assignable”; son went bankrupt
Decision: The annuity could cease and determine if it can be established that they had no interest in it other than personal receipt of the trustees. However, as it is a life interest then it is an asset for his debts.
Rule: A transferor cannot provide that the property shall not be available to the debtor’s creditors; see also Dommett v Bedford
Quote: “There is an obvious distinction between a disposition to a man, until he becomes bankrupt, and then over, and an attempt toggle him property, and to prevent his creditors from obtaining any interest in it, though it is never his.”
Younghusband v Gisborne (1846) 15 LJ Ch 355
Case: Testator left property on trust to provide annuity to his brother “until he shall attempt to charge, anticipate or otherwise encumber the same, or until any other person or persons may claim the same; and from and after such attempt or claim, the same shall be applied… for or towards to personal support, clothing and maintenance of my said brother and for no other person whatsoever”; brother went bankrupt
Decision: Debtor and debtors family held property on discretionary trust, therefore the creditors have no entitlement. Due to there being a range of beneficiaries, it would be giving the petitioners a more extensive charge than contracted for.
Rule: Discretionary trust do not form part of the bankrupt’s estate, cf Dommett v Bedford, a debtor must be entitled to a limited (not absolute) interest for such clause to be valid
Trustee Act 1925, s.33
Protective Trust where annuity for live that becomes discretionary trust on bankruptcy
Roe d. Hunter v Galliers (1787) 2 Term Rep 133; 100 ER 72
Case: Farm let on basis landlord could re-enter if (i) rent unpaid (ii) tenant assigned with landlord’s consent (iii) tenant declared bankrupt (iv) tenant entered composition with creditors; tenant went bankrupt
Decision: A clause may cause a lease to cease and determine on bankruptcy as it is a limited interest (landlord can contract in right to forfeiture of lease). It is different from goods/chattels as a man does not get credit merely from the occupation of the land, but from the interest which he has in it (Grose J).
N.B. Trustee in bankruptcy may apply for relief against forfeiture (but must pay in arrears all rent)
Rule: A lessor can provide that a lease shall not be available to the debtors creditors.
Re Piggin (1962) 106 Sol Jo 786
Case: Under hire purchase agreement if hirer went bankrupt owner could retake possession; hirer went bankrupt: (i) was forfeiture clause valid? (ii) if so could hirer get relief against forfeiture?
Decision: Creditors to pay remaining amount of the price of care.
Rule: It would be inequitable to deprive the trustee in bankruptcy both of the object of a hire purchase agreement and of the amount of the instalments paid after offering the balance. Therefore if the object is recover, then the difference between the balance due and the market value must be paid to the trustee in bankruptcy.
Transag Haulage Ltd v Leyland DAF Finance plc [1994] 2 BCLC 88 (Knox J)
Case: Relief against termination of hire purchase contracts on receivership of hirer granted on the condition of payment of the outstanding instalments within 7 days; the loss of a right to buy could be described as forfeiture of a proprietary right and accordingly the court had jurisdiction to grant relief against forfeiture
Rule: Can repossess, get relief and get rest of payment on receivership and bankruptcy
On Demand Informational plc v Michael Gerson (Finance) plc [2003] 1 AC 368
Case: Jurisdiction to grant relief against termination of a finance lease on lessee’s receivership recognised; even though lease no longer capable of being performed (because by consent of bother parties the equipment had been sold) relief was granted because the sale was without prejudice to the parties right (this reversed both lower courts’ decisions)
Rule: Pure chattel lease (such as of a computer) can attract relief against forfeiture as it is a proprietary interest
Whitmore v Mason (1861) 2 J & H 204; 70 ER 1031 (Sir Page Wood VC)
Case: S was partner with M owning mines of which M was lessee; partnership deed provided lease to be on trust for the partnership and that in the event of bankruptcy of a partner “account shall be taken and a valuation made of the share and interest of such party in the said mines and premises (excluding the value of the said recited lease… which is not to be taken into account).”
Decision: This would be valid but for the exclusion of the value of the lease, as sale at market value is not a fraud on the bankruptcy laws.
Rule: The property principle is not breached by a provision requiring the debtor to sell or transfer property at fair value.
Borland’s Trustee v Steel Brothers & Co Ltd [1901] 1 Ch 279, 290-293 (Farwell J)
Case: B held shares in a company whose articles provided that on death or bankruptcy of a shareholder, the shareholder could be compelled to transfer shares in exchange for what the shareholder regarded as a fair price, if not then nominal value.
Decision: This clause was valid so long as market value is paid.
Rule: A shareholder can be compelled to transfer shares on bankruptcy provided that market value is paid to the trustee in bankruptcy.
Law of Property Act 1925, s. 146
Rule: The trustee in bankruptcy may apply for relief against forfeiture on default of lease, however such a claim is not available for licensed premises.
This is a Court order that reinstates the forfeited lease as if no forfeiture had taken place at all, which is usually made subject to conditions.
