§ 55.

The limitation of the time within which the trustee may disclaim would seem intended to prevent any injustice to the landlord by the trustee continuing to occupy, and then disclaiming after such occupation. The landlord or other person interested can still, as under section 24 of the former Act, compel the trustee to decide whether he will disclaim, and the trustee will, if he neglect so to decide for twenty-eight days, lose his right to disclaim. In the case of a contract it was held, under the Act of 1869, that neglect to disclaim did not put the trustee personally or on behalf of the estate in the position of having adopted it, the only remedy of the other contracting party, in case the trustee ceased to perform it, being to prove for damages for the breach. (Re Sneezum, ex p. Davis, 3 Ch. D. 463.) But now, by sub-section (4), if he does not within the twenty-eight days after application disclaim the contract he will be deemed to have adopted it. (See post, subsection (5).) And if, in the case of a lease, the trustee does not disclaim within the time appointed he will by virtue of privity of estate be personally liable for rent, and on the covenants in the lease from the date of his appointment, because the lease vests in him as from that date. (Wilson v. Wallani, 5 Ex. D. 155; Ex p. Dressler, re Solomon, 9 Ch. D. 252; Titterton v. Cooper, 9 Q. B. D. 473.) He may, however, relieve himself of future personal liability without disclaiming by assigning the lease to a pauper, and this whether the time for disclaiming has or has not gone by. (Hopkinson v. Lovering, 11 Q. B. D. 92.) And in any case a trustee is entitled to indemnity from the estate. (Lourey v. Barker, 5 Ex. D. 170.) Where a trustee in whom a lease had become vested assigned over during a current quarter, it was held that the lessor was entitled to recover a proportionate part of the quarter's rent, in an action against the trustee brought after the expiration of the quarter, under section 2 of the Apportionment Act, 1870. (Swansea Bank v. Thomas, 4 Ex. D. 94.) The disclaimer will not affect third parties unless so far as may be necessary to release the bankrupt, his property, and the trustee from liability. It was accordingly decided, under the Act of 1869, that where the bankrupt was assignee of a lease, the rights of the landlord and original lessee were unaffected by the disclaimer, they being remitted to their original positions. (See Smyth v. North, L. R. 7 Ex. 242; Ex p. East and West India Dock Co., re Clarke, 17 Ch. D. 759; East and West India Dock Co. v. Hill, 22 Ch. D. 14.) So also a surety for a bankrupt assignee of a lease was held liable to pay to the lessee the rent which the lessee had been compelled to pay by the lessor, and which had accrued due after the disclaimer by the trustee in the bankruptcy of the assignee. (Harding v. Preece, 9 Q. B. D. 281.)

Nor, where the bankrupt is lessee, can the landlord upon disclaimer eject a sub-lessee (Smalley v. Hardinge, 7 Q. B. D. 524), while, on the other hand, he is entitled to distrain for the rent reserved by the original lease, and to re-enter for breach of the lessee's covenants or nonpayment of such rent. (Ex p. Walton, re Levy, 17 Ch. D. 746.)

§ 55.

It was held, under the Act of 1869, that freehold property, Freeholds. if burdened with onerous covenants, might be disclaimed, the legal estate reverting apparently to the Crown. (Re Mercer and Moore, 14 Ch. D. 287.) See sub-section (6), post.

As to a disclaimer of shares, see Re West of England Bank, Shares. ex p. Budden and Roberts, 12 Ch. D. 288, in which case, Fry, J., seems to have thought that if a call is made in the interval between the winding-up of the company and the bankruptcy of the shareholder, the trustee ought to be put on the list of contributories in respect of that call.

A similar provision to that contained in sub-section (3), as Sub-s. (3). to obtaining leave to disclaim a lease, was contained in Rule 28 Leave to disof the G. R. 1878, though it was doubted whether the rule claim. was not ultra vires. This sub-section, however, gives to the Court much wider express powers as to the imposition of terms on granting leave than did the old rule, and empowers the Court to make such orders with respect to fixtures, tenants' improvements, and other matters arising out of the tenancy, as the Court may think just. This latter provision would seem to enable the Court, if it saw fit, to give a remedy in such a case as Ex p. Hart Dyke, re Morrish, 22 Ch. D. 410, where it was held that upon disclaimer neither the landlord nor the trustee could claim the benefit of any provisions in the lease which were to come into operation at the expiration or sooner determination of the term. And compare Alloway v. Steere, 47 L. T. 333, where a landlord was held not entitled to set off against the trustee's claim for outgoing valuation, a claim for rent due at the commencement of the bankruptcy. The provision will also enable the Court to make orders as to fixtures, the right to remove which occasioned difficulty, owing to the relation of a disclaimer under the old Act. (See Ex p. Stephen, re Lavies, 7 Ch. D. 127; Ex p. Brook, re Roberts, 10 Ch. D. 100; Ex p. Clegg, re Latham, 19 Ch. D. 7.) It may be doubted whether this section gives the Court power to impose conditions, e. g., as to fixtures, on the landlord, but the Court could, of course, give the trustee unconditional leave to disclaim unless the landlord submitted to such an order as would in its opinion do substantial justice between the parties.

It was held, under the Act of 1869, that in determining What the whether leave should be given to a trustee to disclaim, the Court will Court ought to have regard only to the question whether the giving leave.

regard in

§ 55.

disclaimer will be for the benefit of the persons interested in the administration of the bankrupt's estate, and ought not to have regard to any collateral consideration, such as the injury which the disclaimer might occasion to third parties. (Ex p. East and West India Dock Co., re Clarke, 17 Ch. D. 759.) This case seems inconsistent with the earlier case of Ex p. Buxton, re Muller, 15 Ch. D. 289, where the Court seems to have thought that leave to disclaim ought not to be given to the prejudice of an equitable mortgagee if he was willing to take an assignment of the legal estate in the lease, and to give the trustee a proper and sufficient indemnity.

Compensation The principles by which the Court was guided in deciding to landlord. what compensation ought to be paid to the landlord for occupation by the trustee as a condition of leave to disclaim, under Rule 28 of the Rules of 1871, were considered in several cases. The case of Ex p. Ladbury, re Turner, 17 Ch. D. 532, first recognized the application of the Rule as between the lessor and the trustee. This case was followed by Ex p. Isherwood, re Knight, 22 Ch. D. 384, in which case Cotton, L. J., said, at p. 395: "In determining what the trustee ought to pay, regard must be had to two things, whether the occupation has either in fact produced a benefit to the bankrupt's estate, or was contemplated as likely to produce a benefit." A more limited view, restricting the right to compensation to a case where profit had actually accrued to the estate of the bankrupt, seems to have been taken by Jessel, M. R., in the case of Ex p. Izard, re Bushell, 23 Ch. D. 115; but in the recent case of Ex p. Arnal, re Witton, 24 Ch. D. 26, the Court of Appeal expressed their concurrence with the wider view expressed by Cotton, L. J., rather than with that of Jessel, M. R., and pointed out that it was not necessary for the decision of Ex p. Izard, re Bushell to go beyond the case of actual profit, since the Court came to the conclusion that there had been in that case actual profit to the bankrupt's estate.

Leave where

In one case leave to disclaim was given after the lease had lease expired. expired. The bankrupt was assignee of a lease of a house, which he continued to occupy after his bankruptcy, the trustee neither taking possession nor exercising any act of ownership. At the expiration of the lease the lessor sued the original lessee for dilapidations. The lessee served a third party notice on the trustee, claiming to be indemnified by him as assignee of the term, on the principle established by Moule v. Garrett, L. R. 7 Ex. 101, and the Court gave the trustee leave to disclaim so far as the formal leave was required, but not so as to prejudice by the expression of any opinion any person other than the respondent as to the effect of such disclaimer. (Ex p. Paterson, re Throckmorton, 11 Ch. D. 908.)

§ 55.

without

executed.

It was held under the Act of 1869 that a disclaimer even without leave was valid as against the landlord (Reed v. Harvey, 5 Q. B. D. 184; but see Ex p. Ladbury, re Turner, Disclaimer 17 Ch. D. 532), but it seems that this will no longer be so, leave. having regard to the words of the section and to the provisions of Rule 232, that, except in certain cases there mentioned, every disclaimer without leave shall be void. Rule 28 of the old Rules was held not to apply to a lease of personal_chattels. (Sheffield Waggon Co. v. Stratton, 48 L. J. Q. B. 35.) It is to be observed, however, that the new Rule uses the word "lease" and not "leasehold interest," which was the expression in Rule 28. Where leave is given to disclaim a lease, and a dis- Lessor cannot claimer has been actually executed, the lessor cannot appeal. appeal after The proper course, if he desires to appeal, is to apply when disclaimer the order is made for a stay of proceedings under it (Ex p. Sadler, re Hawes, 19 Ch. D. 122; following Ex p. Ditton, re Woods, 3 Ch. D. 459), or obtain an injunction pending the appeal. (Ex p. Buxton, re Muller, 15 Ch. D. 289.) Leave to When leave disclaim is not necessary where the bankrupt has not sub-let not necessary. or assigned the lease or created any mortgage or charge thereon; and (a) the rent reserved and real value of the property leased, as ascertained by the property tax assessment, are less than twenty pounds per annum; or (b) the estate is administered under section 121; or (c) the trustee serves the lessor with notice of his intention to disclaim, and the lessor does not, within seven days after the receipt of such notice, give notice to the trustee requiring the matter to be brought before the Court. Except as above provided, the disclaimer of a lease without the leave of the Court shall be void. (Rule 232.)

and conditions

on disclaimer.

Sub-section (4) re-enacts section 24 of the Act of 1869, with Sub-ss. (4), (5). the important addition of the concluding words, viz. :-"And Limitation. in the case of a contract, if the trustee, after such application as aforesaid, does not, within the said period, or extended period, disclaim the contract, he shall be deemed to have adopted it." Under the old section it was held that the application to extend the time to disclaim must be made within the twenty-eight days allowed by the section (Ex p. Lovering, re Jones, L. R. 9 Ch. 586; Re Richardson, ex p. Harris, 16 Ch. D. 613); but it is to be observed that the above rule is not inflexible should there be special circumstances which render the application of it inequitable (Banner v. Johnston, L. R. 5 H. of L. 157; Ex p. Moore, re Stokoe, 3 Ch. D. 802), in which last-mentioned case delay in disclaimer was accounted for by pending negotiations. The mere fact that the landlord has, under the lease, compelled the trustee to pay rent in advance is no ground for enlarging the time in the absence of negotiation, or of any

W.B.

S

§ 55.

Power to rescind contract.

Re Sneezum, ex p. Davis.

Adoption of contract.

thing to mislead the trustee, or of special circumstances excusing the delay in deciding as to disclaimer. (Re Richardson, ex p. Harris, ubi sup.)

Sub-section (5) empowers the Court, at the instance of the other party to the bankrupt's contract, to rescind the contract, and award damages provable in the bankruptcy. The mutual rights of the trustee and the other contractor under these two sub-sections are by no means clear. Sub-section (5), as well as the words of sub-section (4), quoted above, are, it will be observed, new. In the case of Re Sneezum, ex p. Davis, 3 Ch. D. 463, it was decided that where a trustee, after being called upon to decide as to disclaiming a continuing contract of the bankrupt, under the similar provision (section 24) of the Act of 1869, did not disclaim it, but carried it on for the benefit of the estate, and, subsequently, when it suited him, ceased to perform it, the other contractor was entitled to prove for damages for the breach against the bankrupt's estate, and that this was his only remedy. The Court held that the claim of the other contractor was provable under the very wide terms of section 31 of the old Act, and it will be observed that the terms of the corresponding section 37 (3) of the present Act are practically the same. The question then arises, What is the effect of the new provision at the end of sub-section (4) as to adopting the contract? Is it intended to make the trustee personally liable, or only to effect a novation, by which the trustee, as representing the body of creditors, is substituted as the party liable for the trustee, as representing the old bankrupt contractor? It is submitted that the latter is the true interpretation. The great disinclination of the Court to any interpretation which would impose upon a trustee by law, without any election of his own, a damnosa hæreditas, is shown by such cases as Goodwin v. Noble (8 E. & B. 587); Ex p. Lucas (3 D. & C. 144); Onslow v. Currie (2 Madd. 330); Lindsay v. Limbert (12 Moore, 209). On the other hand, referring to Re Sneezum, ex p. Davis, ubi sup., it will be observed that the contention for the appellants before Bacon, C. J., was that the trustee was personally liable; but the counsel for the same appellants in the Court of Appeal expressly abandoned this contention, and contended for the liability of the creditors as a body, as substituted contractors, with their consequent liability to pay damages in full out of the estate. And James, L. J., in delivering judgment, -"No doubt there is great force in the argument which Mr. Benjamin has addressed to us, and possibly the legislature may be induced, upon consideration of many of the topics upon which he has dwelt, to alter the language of these sections of the Act." It is submitted that this anticipa

says: